The Reserve Bank of India (RBI) has launched the first pilot of its central bank digital currency (CBDC); the digital rupee.
Following an announcement from the RBI yesterday that the pilot of the digital rupee will be launched 1 November, nine banks have been identified in facilitating the launch, including India’s largest bank, State Bank of India.
The digital rupee pilot use case will be used to settle secondary market transactions in government securities, with a core aim in mind to make the CBDC help the country’s “interbank market more efficient”, stated the RBI.
In addition to the benefits the role of the digital rupee can play in the interbank market, the RBI also added that the digital currency would help reduce transaction costs.
Along with the State Bank of India, the pilot is also supported by the Bank of Baroda, Union Bank of India, HDFC Bank, and HSBC to name a few.
Initially announced during an annual budget speech from the Minister of Finance of India, Nirmala Sitharaman, the digital rupee was proposed last February in a bid to give the country’s digital economy a “big boost”.
Sitharaman stated: “Introduction of a central bank digital currency will give a boost, a big boost to the digital economy.
“Digital currency will also lead to a more efficient and cheaper currency management system.”
CBDCs have been in consideration of many of some of the world’s largest economies. Most recently, the UK agreed upon new guidelines surrounding stablecoins, which can lead to a potential digital pound due to stablecoins nature of tethering to existing fiat currencies.
Sitharaman also noted back in February that India intends to introduce a 30% income tax on digital assets, although this is unclear whether this will apply to the digital rupee.
The pilot launch of the CBDC is expected to be released to the retail segment within the next month in select locations, read a statement from the RBI.
The Indian national bank also outlined and considered the pros and cons of a CBDC prior to the pilot launch, working on strategies to implement the digital rupee in a phased manner.
Expert Analysis: CBDCs have been at the epicentre of government discussions when it comes to exploring cryptocurrency regulations. Whilst CBDCs allow governments greater control over a digital currency, they can often stifle innovation of external cryptocurrencies, such as Bitcoin and Ethereum.
Speaking to the BBC last February in light of Sitharaman’s proposed 30% digital asset tax rate, Sumit Gupta – Co-Founder of India-based crypto exchange CoinDCX – outlined his belief that the income tax on cryptocurrencies “might act as a dampener for greater adoption”.