The RBI declares that it is launching central bank digital currency (CBDC) in November, 2022 on a pilot basis. It has chosen nine banks to issue the digital currency for transactions in government securities. It will be first used to settle secondary transactions in G-Sec ( government securities) market.

The CBDC can be classified into two categories — retail and wholesale. The categorisation depends upon the use and access — the wholesale currency can be accessed by financial institutions. India’s pilot consists of testing CBDC in the wholesale market. The RBI plans to explore the use of wholesale CBDC for OTC transactions, commercial papers (CP) and certificates of deposit (CD). The wholesale transactions will be account-based.

The purchase of G-Secs, CPs and CDs can be done by issuing tokens (thus by passing the bank account route). Such tokenised CBDC can be extended to non-residents to make them invest in domestic asset classes.

The RBI is exploring token-based CBDC in retail segment. The wholesale transactions will be account-based. And the retail transactions will be token-based.

The technology architecture, token security, central bank node, standards and protocols to be followed — all these will be tested. There would be focus on prevention of counterfeits and on security.

CBDC will be further developed to provide a risk-free virtual currency. After the present wholesale CBDC Pilot, in a month’s time the RBI will start the pilot for CBDC in the retail segment in select locations and in closed user groups consisting of merchants and users.

CBDCs are aimed to complement, rather than replace, the current forms of money . Being digital, these are easier, faster and cheaper. It will provide the public with uses that any private crypto can without associated risks.

On 1st November, 2022, the trades using CBDC or the e-rupee in the government securities in secondary market went live recording a value of Rs.275 crore. There were 48 trades on the first-day of the RBI pilot run.