The Reserve Bank of India (RBI) stated on Tuesday that the first pilot for retail central bank digital currency (CBDC) would begin on December 1. According to the RBI, the digital rupee will exist as a digital token that stands in for money.

The pilot would cover select locations in closed user groups (CUG) comprising participating customers and merchants, the RBI said in a statement.

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The pilot will also test the robustness of the entire process of digital rupee creation, distribution, and retail usage in real-time. Different features and applications of the digital token and architecture will be tested in future pilots, based on the learnings from this pilot, it added. 

Digital tokens would be distributed in the same denominations as existing coins and paper money. It would be given out via middlemen, i.e., banks, 

According to the RBI, customers will be able to conduct transactions using the digital rupee through a digital wallet provided by the participating banks and kept on mobile phones or other devices.

“Transactions can be both Person to Person (P2P) and Person to Merchant (P2M). Payments to merchants can be made using QR codes displayed at merchant locations,” the central bank said in the statement.

Eight banks have been identified for phase-wise participation in this pilot. The first phase will begin with four banks State Bank of India, ICICI Bank, Yes Bank, and IDFC First Bank in four cities across the country. Four more banks Bank of Baroda, Union Bank of India, HDFC Bank, and Kotak Mahindra Bank will join this pilot subsequently. The pilot would initially cover four cities, Mumbai, New Delhi, Bengaluru, and Bhubaneswar, and later extend to Ahmedabad, Gangtok, Guwahati, Hyderabad, Indore, Kochi, Lucknow, Patna, and Shimla. The scope of the pilot may be expanded gradually to include more banks, users, and locations as needed.

Benefits of the digital rupee

The digital rupee would offer features of physical cash like trust, safety, and settlement finality. As in the case of cash, it will not earn any interest and can be converted to other forms of money, like deposits with banks.