India’s central bank to launch retail CBDC pilot in December

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The Reserve Bank of India (RBI) is eyeing a launch of a retail central bank digital currency (CBDC) pilot in December following the success of a wholesale CBDC pilot, reports the Economic Times of India.

India’s central bank is at the last stage of preparing for the rollout of the CBDC, and the ‘digital rupee’ will be interoperable with multiple payment platforms available in the country. Several commercial banks will participate in the project with RBI noting that each financial institution will test the CBDC with at least 10,000 – 50,000 of their customers.

The participating banks include the State Bank of India, Bank of Baroda, ICICI Bank, HDFC Bank, Yes Bank, Kotak Mahindra Bank, and IDFC First Bank. RBI notes that this number will increase to encompass more financial institutions in the country.

It is unclear whether distributed ledger technology (DLT) will be used for the CBDC, but the central bank says it will adopt a technology interface similar to the Unified Payments Interface (UPI) as the technology layer for the digital rupee. UPI was developed by the National Payments Corporation of India (NPCI) as an instant real-time payment system that facilitates peer-to-peer and person-to-merchant transactions.

“Just like we have a common library for UPI, the technology for CBDC is similar to that and it is being hosted by NPCI, it will be interoperable with the current payment platforms,” said an anonymous source with knowledge of the project. “The e-rupee will be stored in a wallet, and the denominations will be available as per the customer’s request, just like you request cash from an ATM.”

The banking regulator had previously announced that the retail CBDC could be a standalone product, but it appears to have had a change of heart. The digital rupee will be integrated with internet banking services with RBI noting that the offering is not meant to replace the existing payment system but to serve in a complementary role.

Enthusiasts are unsure if RBI will choose DLT

The RBI has previously poked holes into the suitability of DLT in launching the digital version of its national currency. The central banks stated it prefers a centrally-controlled, conventional database infrastructure over DLT, citing a number of reasons.

“Given the above, DLT at this point in time is not considered suitable technology except in very small jurisdictions, given the probable low volume of data throughput,” the central bank said.

However, the government notes that DLT will play a central role in its processing in the coming years, with Finance Minister Nirmala Sitharaman eyeing a 46% DLT adoption rate by 2030.

To learn more about central bank digital currencies and some of the design decisions that need to be considered when creating and launching it, read nChain’s CBDC playbook.

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