The Reserve Bank recently announced in a press release dated October 7, 2022, that it would shortly begin test launches of Digital Rupee (e₹) for specific use cases. The pilot for the Digital Rupee – Wholesale segment (e₹-W) was to start on November 1, 2022. 

Within the next month, by December 1, a closed user group (CUG) consisting of consumers and merchants would be able to try out the first trial for Digital Rupee’s Retail section (e₹-R). The e-R would be represented by a digital token that serves as legal money. It would be produced in the same denominations as banknotes and coins and be delivered via banks as middlemen. 

Users can transact with e-R using a digital wallet provided by partner banks saved on their mobile phones/devices. Person-to-person (P2P) and merchant-to-consumer (P2C) transactions are both possible (P2M). 

The e-R would provide attributes of physical currency, such as trustworthiness, security, and settlement finality. However, it will not accrue interest but may be changed into other types of money, such as bank deposits.

For participation in the pilot, nine institutions have been identified: State Bank of India, Bank of Baroda, Union Bank of India, HDFC Bank, ICICI Bank, Kotak Mahindra Bank, Yes Bank, IDFC First Bank, and HSBC. The pilot will first span four cities, namely Mumbai, New Delhi, Bengaluru, and Bhubaneswar, before expanding to Ahmedabad, Gangtok, Guwahati, Hyderabad, Indore, Kochi, Lucknow, Patna, and Shimla. 

The use of e₹-W is anticipated to increase the efficiency of the interbank market. Settlement in central bank money would decrease transaction costs by eliminating the need for settlement guarantee infrastructure or collateral to offset settlement risk. 

Future pilots will concentrate on additional wholesale transactions and cross-border payments based on the findings of this trial.