The Reserve Bank of India (RBI) is set to launch the first pilot project of a central bank digital currency (CBDC) or e-rupee on Tuesday, i.e., today. The pilot will see nine banks, including SBI, Bank of Baroda, HDFC Bank, Yes Bank, Kotak Mahindra Bank and ICICI Bank, settle secondary market transactions in government securities.

Central Bank Digital Currency (CBDC) is a digital form of legal tender issued by the Reserve Bank of India (RBI). Digital currency can be one-to-one as it is the digital form of fiat currency, the Indian rupee.

It will initially be for the wholesale segment and expand to the retail category within a month. According to the RBI, the pilot project for the retail e-Rupee will be launched within a month at selected locations of a closed user base.

Going forward, future pilots will focus on wholesale transactions and cross-border payments based on pilot experience. Settlement in central bank currency will reduce transaction costs.

According to the RBI, the use of the digital rupee in the wholesale sector is expected to increase the efficiency of the interbank market.

CBDC is a digital or virtual currency, but it cannot be compared to the private virtual currencies or cryptocurrencies that have mushroomed over the past decade. Private virtual currency does not represent anyone’s debt or liability because there is no issuer.

Private cryptocurrencies will never become legal tender, the government says. The Reserve Bank of India has been strongly opposed to private cryptocurrencies due to their potential impact on national security and financial stability. Not so with digital currencies.