We recently reported that the Federal Reserve plans to launch a 12-week pilot program in partnership with several large commercial banks to test the feasibility of a central bank digital currency (CBDC). The US isn’t alone in experimenting with digital currency. India is working on developing a digital rupee and recently announced the second phase of testing.
After successfully running a pilot program to test its digital currency at the wholesale level, the Reserve Bank of India (RBI) has announced it will test the digital rupee in a retail setting.
According to the RBI, the central bank digital currency “is a legal tender issued by a central bank in a digital form. It is the same as a fiat currency and is exchangeable one-to-one with the fiat currency. Only its form is different.”
Digital currencies are similar to bitcoin and other cryptocurrencies. They exist as virtual banknotes or coins held in a digital wallet on your computer or smartphone. The difference between a government digital currency and bitcoin is the value of the digital currency is backed and controlled by the state, just like traditional fiat currency.
As the RBI put it, “Unlike cryptocurrencies, a CBDC isn’t a commodity or claims on commodities or digital assets. Cryptocurrencies have no issuer. They are not money (certainly not currency) as the word has come to be understood historically.”
According to a report in the Economic Times of India, the National Payments Corporation of India will host the platform for the digital rupee payment system during the testing phase. The Reserve Bank of India wants each commercial bank in the pilot to test retail use of the digital rupee with 10,000 to 50,000 users.
State Bank of India, Bank of Baroda, Union Bank of India, ICICI Bank, HDFC Bank, Kotak Mahindra Bank, Yes Bank and IDFC First Bank will participate in the pilot program. If the pilot is successful, the RBI will roll out the program to the entire Indian banking system.
“The e-rupee will be stored in a wallet, the denominations will be available as per the customer’s request, just like you request cash from an ATM. Banks are launching this only in select cities,” a person involved in the program told the Times.