India launching pilot cryptocurrency scheme

NEW DELHI, 1 Nov 2022:

The Reserve Bank of India (RBI, or the central bank) is set to launch a pilot programme today for the country’s state cryptocurrency, or the digital rupee.

The Digital Rupee will be used from Nov 1, “which will initially serve for settlement of secondary market transactions in government securities,” the RBI said in a statement yesterday.

Initially, wholesale transactions of the digital currency will be allowed through nine banking institutions in the country.

“Going forward, other wholesale transactions, and cross-border payments will be the focus of future pilots, based on the learnings from this pilot,” the statement added.

The first retail digital rupee pilot is expected to be launched a month from now in select locations in closed user groups comprising customers and merchants.

In an extensive report released last month by the RBI for the implementation of the state cryptocurrency, it states the Central Bank Digital Currency (CBDC) brings “would reduce transaction costs by pre-empting the need for settlement guarantee infrastructure or for collateral to mitigate settlement risk.”

The report also underlined that “the potential impact on monetary policy from an introduction of CBDC is still unclear and is purely speculative given that only limited CBDCs are currently in existence as few nations have issued till date.”

The creation of the digital currency was announced in February by the Indian government, after in 2019 it tried to ban transactions on private cryptocurrencies under a rule that the Supreme Court later termed as illegal.

The monetary instrument will operate through blockchain technology and differs from most cryptocurrencies, which do not depend on any central bank, as it will follow the regulations set by the RBI.