The Digital Rupee (e₹), also known as Central Bank Digital Currency (CBDC), is a digital representation of currency notes produced by the Reserve Bank of India. It is quite similar to banknotes, but because it is digital, it is likely to be easier, faster, and less expensive. It also has all of the transactional advantages of other types of digital currency. Digital currency is basically payment systems which involve digital transactions in electronic form and is not physically tangible like rupee.
CBDC (Central Bank Digital Currency) can be classified into two types:
- Retail (CBDC-R):
- Wholesale (CBDC-W)
Retail (CBDC-R):
Individuals would be the main users of retail CBDCs. Since the currency is created and backed by the nation's central bank, users might use them effectively as digital cash.The necessity to carry physical money might be eliminated by this invention, which would also help to lower the costs of doing business in the established financial system.
Wholesale (CBDC-W)
The main users of wholesale CBDCs would be banks and other financial organisations. The use of CBDCs would allow banks to make payments in a quicker and more automated manner. Payment settlement systems now operate in a single jurisdiction or with a single currency. Using blockchain technology might make transactions faster, smoother, and more trustworthy.
Notes: Wholesale (CBDC-W) type Central Bank Digital Currency which was the first pilot in the Digital Rupee, Wholesale segment shall commence on November 1, 2022," the RBI said in a statement on 'Operationalisation of Central Bank Digital Currency-Wholesale (e ₹-W) Pilot'.
Retail (CBDC-R) Central Bank Digital Currency Retails: Individuals would be the main users of retail CBDCs. Since the currency is created and backed by the nation's central bank, users might use them effectively as digital cash.The necessity to carry physical money might be eliminated by this invention, which would also help to lower the costs of doing business in the established financial system.
Wholesale (CBDC-W)
The main users of wholesale CBDCs would be banks and other financial organisations. The use of CBDCs would allow banks to make payments in a quicker and more automated manner. Payment settlement systems now operate in a single jurisdiction or with a single currency. Using blockchain technology might make transactions faster, smoother, and more trustworthy.
Notes: Wholesale (CBDC-W) type Central Bank Digital Currency which was the first pilot in the Digital Rupee, Wholesale segment shall commence on November 1, 2022," the RBI said in a statement on 'Operationalisation of Central Bank Digital Currency-Wholesale (e ₹-W) Pilot'.
Some advantages of using a CBDC are as follows:
- Increase the effectiveness of payments
- Complement existing payment systems and financial services
- Reduce illegal activities and enhance global payment possibilities
- minimise net transaction costs potentially, helping lower-income families
In addition to potential benefits, including the following:
- Instability could result from changing the present financial system.
- The efficiency of monetary policy might decline.
- operational problems
- the dangers of cyberspace
- Due to the loss of anonymity, there is a loss of privacy.
List of participation in digital rupee’s wholesale pilot are:
- State Bank of India,
- Bank of Baroda
- Union Bank of India
- HDFC Bank
- ICICI Bank
- Kotak Mahindra Bank
- Yes Bank
- IDFC First Bank
- HSBC
Nine banks have been chosen to participate in the pilot project, according to the RBI: State Bank of India (SBI), Bank of Baroda, Union Bank of India, HDFC Bank, ICICI Bank, Kotak Mahindra Bank, Yes Bank, IDFC First Bank, and HSBC.