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Today marks the debut of the E-rupee; who can use RBI's digital currency?

#erupee #RBI

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The launch of India's very own centralized digital currency is just around the corner. On December 1, the Reserve Bank of India (RBI) will start the trial phase for retail Digital Rupee transactions, often known as e-R. (Thursday).

The Reserve Bank of India (RBI) said on Tuesday that the retail Central Bank Digital Currency (CBDC) would take the form of a digital token that would constitute legal cash.

According to the Atlantic Council, there are around 19 nations that are now in the pilot stage of the CBDC. Among these countries are China and South Korea.

Who exactly would be permitted to use the virtual currency during the trial stage as India prepares to launch its very own CBDC? What is the e-rupee, and how exactly will it function? Will payments made using the UPI be impacted? Let's take a thorough look.

Who exactly is eligible to utilize the retail e-rupee?

The Reserve Bank of India (RBI) will start the first phase of the pilot with a limited number of financial institutions. During this stage, selected locations inside a closed user group (CUG) made up of participating consumers and businesses would be used.

The pilot program would first be implemented in four cities, namely Mumbai, New Delhi, Bengaluru, and Bhubaneswar. Subsequently, it will be expanded to include Ahmedabad, Gangtok, Guwahati, Hyderabad, Indore, Kochi, Lucknow, Patna, and Shimla.

Both consumers and business owners operating inside the CUG in these cities will have access to the e-rupee, also known as the digital rupee.

Participating in the trial launch in these four cities will be the State Bank of India, ICICI Bank, Yes Bank, and IDFC First Bank. These four banks will make up the total number of participants. Following that, the Reserve Bank of India (RBI) said in a statement that four other banks—the Bank of Baroda, the Union Bank of India, the HDFC Bank, and the Kotak Mahindra Bank—will participate in the program.

According to the further information provided in the announcement, "the scope of the pilot may be extended progressively to include more banks, users, and locations as necessary."

What is Digital Rupee and how does it function?

The Reserve Bank of India (RBI) has begun issuing a digital version of the rupee that may be used in transactions that do not need physical touch.

"It is similar to sovereign paper money but takes on a new form. It is exchangeable at the same rate as the currency that is now in circulation, and it shall be accepted as a means of payment, legal tender, and a secure place to deposit wealth. The RBI has previously said that CBDCs will be shown as a liability on the balance sheet of a central bank.

The central bank believes that the e-R will give attributes that are similar to those of "physical currency," such as trust, safety, and finality of settlement.

The Reserve Bank of India (RBI) said that the Digital Rupee, much like cash, would not accrue any interest and could be exchanged for other types of money, such as deposits with banks.

Retail CBDC, which is an electronic equivalent of currency, would ultimately be accessible to everyone so that retail transactions may be conducted using it.

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In its most recent announcement, the Reserve Bank of India (RBI) indicated that the retail Digital Rupee will be delivered via banks. "Users will be able to transact with e-R through a digital wallet offered by the participating banks and stored on mobile phones/devices," the central bank said, shedding light on the workings of the centralized digital currency. "Users will be able to transact with e-R through a digital wallet offered by the participating banks and stored on mobile phones/devices."

Person-to-person (P2P) and person-to-merchant (P2M) transactions are both included in this category (P2M).

Using the QR codes that are displayed at various merchant locations, users are able to make payments to merchants using Digital Rupee.

Why did they need the pilot?

According to the Reserve Bank of India (RBI), the "testing of the resilience of the whole process of digital rupee generation, distribution, and retail use in real time" would take place throughout the pilot project.

"Different features and uses of the e₹-R token and architecture will be evaluated in future pilots based on the learnings from this pilot," the central bank noted. "Based on the learnings from this pilot, further pilots will be designed."

Will e-rupee have an impact on UPI payments?

According to Economic Times, digital payments done via UPI and IMPS require that the money sent be guaranteed by a real currency. The situation is different when using an e-rupee, however, since it is not backed by actual currency.

According to the opinions of several industry professionals, the retail Digital Rupee will not be a direct rival to the various current online payment methods but would instead provide a new means to carry out transactions.

If you have a retail CBDC, you should be able to do business without the involvement of a bank (like physical cash). Its denominations will be the same as those of actual currency. The UPI, on the other hand, is a real debit from your bank account, while this is not the case at all. According to Vishwas Patel, executive director of Infibeam Avenues Ltd., in an interview with Business Today, CBDC is a currency and a legal tender that is insured by RBI.

The alternative form of CBDC

Wholesale digital currency is the other kind of digital currency that is controlled by central banks in addition to a general purpose or retail (CBDC-R) digital currency (CBDC-W).

The purpose of CBDC Wholesale is to provide privileged access to a limited number of financial institutions. Because it is a direct responsibility of the central bank, it is generally accepted that retail CBDC may make it possible to have access to secure money for the purposes of payment and settlement. According to what was said in the concept paper that the central bank published in October, "Wholesale CBDC has the potential to change settlement systems for financial transactions and make them more efficient and safe."

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