What do you mean by Digital Rupee? In this context, explain the working and progress of India's Central Bank Digital Currency (CBDC).
The Digital Rupee (e₹) is a sovereign digital currency issued by the Reserve Bank of India, a legal tender in electronic form, equivalent in value to physical currency. It is a liability of the RBI, unlike private cryptocurrencies or bank deposits.
Working:
- Issued in two forms: CBDC-Wholesale (e₹-W) for interbank settlement, and CBDC-Retail (e₹-R) for public use.
- Distributed through a two-tier model: RBI issues to banks, which distribute via digital wallets.
- Uses token-based transfer for retail (like cash) and account-based for wholesale.
- Enables offline transactions, programmability, and instant peer-to-peer transfers without intermediaries.
Progress:
- Pilot launched in November 2022 (wholesale) and December 2022 (retail).
- Extended to non-bank Payment System Operators, integrated with UPI via QR-code interoperability.
- Cross-border use explored under Project Nexus with BIS.
CBDC promises reduced cash-handling costs, financial inclusion, and efficient cross-border payments, positioning India among digital-currency pioneers.
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