Home Digital Currencies India begins digital rupee pilot in four cities with four banks

India begins digital rupee pilot in four cities with four banks

India: today (1 December) sees the start of retail CBDC trials in Mumbai, New Delhi, Bengaluru and Bhubaneswar | Credit: Avinash Mishra; Pixabay

The Reserve Bank of India (RBI) is kicking off the first phase of a retail central bank digital currency (CBDC) pilot in four cities and involving four banks.

The central bank for the world’s second most populous country said the first pilot activity for a digital rupee – which gets underway today (1 December) – would involve a ‘closed user group’ comprising customers and merchants.

Mumbai, New Delhi, Bengaluru (also called Bangalore) and Bhubaneswar are the locations for initial tests. Pilot activity will later extend to Ahmedabad, Gangtok, Guwahati, Hyderabad, Indore, Kochi, Lucknow, Patna and Shimla.

Digital rupees, in the form of digital tokens representing legal tender, will be issued in the same denominations that paper currency and coins are currently available and distributed through banks acting as intermediaries. The quartet of banks initially involved in the four cities are: State Bank of India, ICICI Bank, Yes Bank and IDFC First Bank. Four more banks – Bank of Baroda, Union Bank of India, HDFC Bank and Kotak Mahindra Bank – will join the pilot subsequently.

The scope of pilot may be expanded gradually to include further locations, banks and users ‘as needed’, the RBI states in its announcement, which is authored by long-serving RBI chief general manager Yogesh Dayal.

CBDC frontrunner China’s staged rollout of its digital yuan also began in four urban areas more than two-and-a-half years ago.

CBDC payments via QR codes

The RBI states that the pilot ‘will test the robustness of the entire process of digital rupee creation, distribution and retail usage in real time’ and that ‘different features and applications of the digital rupee token and architecture will be tested in future pilots, based on the learnings’.

Users will be able to transact through a digital wallet offered by the participating banks and stored on mobile devices. Transactions can be person-to-person and person-to-merchant. Payments to merchants (retailers) can be made using QR codes due to be displayed at merchant locations.

A retail CBDC is for general population use, in contrast to a wholesale CBDC, which is for inter-bank and institutional transactions. The RBI started a wholesale CBDC pilot one month ago.

In early October, the central bank said in a ‘Concept Note on Central Bank Digital Currency (CBDC) for India’ that ‘as the extent and scope of pilot launches expand, it will continue to communicate about the specific features and benefits of a digital rupee, from time to time’. The paper outlined a five-step plan towards a live e-rupee: building a prototype and specifying technical requirements to technology partners; tests in an ‘operationally controlled environment’ to examine functionality, including design, deployment plan and success criteria; performing ‘test cases with both positive and negative scenarios’ to examine durability (and documenting the results); evaluating test results and finalising prototype design; and conducting ‘large-scale pilots with a diverse and larger user base’.

A timeline for a digital rupee’s launch was first provided by finance minister Nirmala Sitharaman in the Budget earlier this year. Sitharaman said on 1 February that the central bank would introduce the digital currency ‘starting 2022-2023’.

African CBDC progress assessed

In a separate CBDC development, results of a survey of 19 African central banks on the topic of CBDC have been published by the Switzerland-headquartered Bank for International Settlements (BIS).

The 23-page ‘Central bank digital currencies in Africa’ paper assesses the motivations behind, and concerns about, CBDCs in Africa – where it states that interest among central banks has ‘shot up in recent times’ – relative to other emerging and developing regions. All 19 central banks surveyed are at least ‘analysing’ CBDCs, with a few either at pilot stages or – like the eNaira in Nigeria, Africa’s most populous country – already live.

‘Some countries, in particular in East and West Africa, stand out as promoting fast payment systems through mobile money, but half of the surveyed central banks think that CBDCs can provide a superior solution,’ the paper states.

‘Like their peers, a key motivation for African central banks is achieving greater payment system efficiency,’ the paper notes. ‘In addition, a higher proportion than in other regions see potential benefits for monetary policy, an important consideration for a region where the transmission mechanism is weak. Central banks in Africa also place more emphasis on financial inclusion. These factors could foster CBDC issuance and favour adoption.’

But the paper goes on to state that ‘at the same time, [central banks in Africa] are more worried than other regions about cyber-security risks and cross-border spillovers and are also concerned about high operational burdens. These factors and others, such as the high degree of informality that may hinder adoption, favour a cautious approach.’


‘India to begin CBDC pilots “soon” – our news story (12 October 2022) on the ‘Concept Note on Central Bank Digital Currency (CBDC) for India’

‘India to launch digital rupee by early 2023’ – our news story (8 February 2022) on Nirmala Sitharaman announcing plans for the issuance of a digital rupee during her presentation of the 2022-2023 Budget

‘CBDC pilots in India possible in “near future”’ – a news story (9 August 2021) on RBI deputy governor T Rabi Sankar saying that ‘perhaps the time for CBDCs is nigh’ in the country

‘“Sceptical” India investigates central bank digital currency’ – a news story (1 February 2021) on the RBI researching the possibilities for an Indian CBDC