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Mahesh

02/12/22 06:51 AM IST

Pilot Project on Retail Digital Rupee

In News 
  • The Reserve Bank  launched the first pilot for retail digital Rupee (e₹-R) also called Central Bank Digital Currency (CBDC).
About the project 
  • The first phase of a pilot project that will cover select locations and banks in a closed user group (CUG) comprising participating customers and merchants.
  • The pilot will initially cover the four cities of Mumbai, New Delhi, Bengaluru, and Bhubaneswar, where customers and merchants will be able to use the digital rupee (e₹-R), or e-rupee.
  • According to the central bank, the pilot will test the robustness of the entire process of digital rupee creation, distribution and retail usage in real time.
e-Rupee 
  • RBI defines the CBDC as the digital form of currency notes issued by a central bank. It is a sovereign or entirely independent currency issued by the central bank (in this case, RBI), in accordance with the country’s monetary policy.
  • Once officially issued, CBDC will be considered as a medium of payment and legal tender by all three parties - citizens, government bodies, and enterprises. Being government-recognised, it can be freely converted to any commercial bank’s money or notes.
  • RBI is not in favour of e-rupee with interest. Because people might withdraw money from banks and convert it to digital rupee - causing banks to fail.
Difference with Cryptocurrencies
  • The underlying technology of cryptocurrency (distributed ledger) can underpin parts of the digital rupee system, but the RBI has not decided on this, yet.
  • However, cryptocurrencies like bitcoin or ethereum are ‘private’ in nature. Digital rupee on the other hand, will be issued and controlled by the RBI.
Working of Digital Rupee 
  • The e₹-R would be in the form of a digital token that represents legal tender. It will be issued in the same denominations as paper currency and coins, and will be distributed through intermediaries, i.e., banks.
  • Users will be able to transact with e₹-R through a digital wallet offered by the participating banks and stored on mobile phones and devices, according to the RBI.
  • 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 e₹-R 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.
Source- Economic times 

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