India starts testing its Digital Rupee

Emerging economies like that of India are now getting aboard the digital currency bandwagon. The country has launched the retail version of its digital currency, on a test basis.

The Reserve Bank of India, the nation’s central bank, has started testing its digital currency in different cities.

Central bank digital currency (CBDC), the digital rupee, will be tested in four cities of India including Bengaluru, Bhubaneswar, Mumbai, and New Delhi.

Four banks, namely ICICI Bank, IDFC First Bank, Yes Bank and the State Bank of India are slated to join in in the first digital currency pilot, with four more sets to join later on, according to the RBI.  This new digital currency will be distributed “in the same denominations that paper currency and coins are currently issued.”

Later on, the pilot program will expand to nine more cities and four institutions will also join, the RBI stated.

Along with safety, trust and final settlement, the e-rupee shall also have the same attributes of physical money, said central bank. Also, the e-rupee will not earn interest and could be converted to other forms of money, including bank deposits. The distribution of e-rupees will be done via mobile wallets of banks. Transactions done between individuals and making payments to merchants are both possible. For the latter, a QR code scan will be required, according to the central bank.

The pilot program began on December 1. During her budget speech in February, Finance Minister Nirmala Sitharaman shared that there are plans to release a digital rupee in the fiscal year ending in 2023 (India’s fiscal year ends on February 28).

Digital currency vs Cryptocurrency

Many would think that the digital Rupee is just like a cryptocurrency, but there’s a difference between them.

Cryptocurrency is held as a record on the Blockchain technology database, whereas the digital Rupee is a form of digital token that represents legal tender. This simply means that the e-rupee is a currency that exists online.

Currently, the RBI’s stance on private cryptocurrencies is that these should be banned in India.

According to The Pioneer, if the e-rupee rises to popularity, it could pave the way for other cryptocurrency to become legit.