RBI Digital Currency pilot has components backed by technology

The Reserve Bank of India's Central Bank Digital Currency pilot in the retail segment has components backed by the technology and has a number of common features with physical cash, Minister of State for Finance Pankaj Chaudhary told the Lok Sabha on Monday.

CBDCs, a digital form of currency notes issued by a central bank, are being trialed in India. The RBI launched a pilot for the retail segment for a group of participating customers and merchants on December 1.

The Union Minister did not elaborate further on the use of blockchain technology for CBDCs, but he added that the ''Digital Rupee' as the pilot of the CBDC has several features of the physical currency.

It's 'Digital Rupee' has been issued in the same denomination as the paper currency and coins. The official government communique said it offers features of physical cash like trust, safety and settlement finality.

The Minister said that the CBDC will not earn any interest but can be converted into bank deposits.

The trial began on November 1 for the settlement of secondary market transactions in government securities, but the Minister told the Lok Sabha that they are expected to make the inter-bank market more efficient.

He noted that settlement in central bank money would reduce transaction costs by preempting the need for settlement guarantee infrastructure or collateral to mitigate settlement risk.

On October 7th this year, the RBI released its concept note on CBDC, which talked about key considerations such as technology and design choices, possible use cases and issuance mechanisms.