Banks to send invites to select customers for use of retail pilot CBDC: V Vaidyanathan, MD & CEO of IDFC First Bank

The four banks selected for the first pilot of retail central bank digital currency (CBDC) will send invitations to select customers for its usage and it will be available to them as per their order to the bank, said V Vaidyanathan, managing director and chief executive officer of IDFC First Bank in an exclusive interview with Moneycontrol.

Banks have created a wallet in their mobile banking applications where these CBDCs, or digital rupees, will be credited and now they would be available only to select customers.

"Banks will indent digital currency of specific denominations and such digital currency will appear in the banks' wallets. When the customer will indent them the bank will provide them digital currency," he added.

Customers selected by banks for the pilot can ask banks to debit their bank account and transfer certain denominations of currency to their CBDC wallet.

"There are no conversion charges for converting currency to CBDC. This will play a big role in reducing cash as the CBDC ecosystem evolves over time," he said.

On the benefits of this currency, Vaidyanathan said it will be an advanced form of payment and more secure than cash. This is just the start, more use cases will evolve, he said.

After it gets fully operationalised throughout the country, CBDC will reduce the currency printing cost for the Reserve Bank of India (RBI).

Pilot launch of retail CBDC

On November 29, the RBI announced it is starting the first pilot for the retail digital rupee on December 1.

The central bank has identified eight banks for the project which will happen in two phases.

The first will begin with four banks, State Bank of India, ICICI Bank, Yes Bank and IDFC First Bank. They will offer the retail digital rupee in four cities — Mumbai, New Delhi, Bengaluru and Bhubaneswar.

The second phase will see four more banks joining the project, Bank of Baroda, Union Bank of India, HDFC Bank and Kotak Mahindra Bank. These banks will extend the pilot to nine more cities: Ahmedabad, Gangtok, Guwahati, Hyderabad, Indore, Kochi, Lucknow, Patna and Shimla.

What RBI said on retail CBDC

Last year, RBI deputy governor T Rabi Sankar in a speech said that interest in CBDCs is near universal now, and very few countries have reached the pilot stage of launching their CBDCs.

He pointed out three reasons for the high interest in CBDCs: Central banks, faced with dwindling usage of paper currency, seek to popularise a more acceptable electronic form of currency (like Sweden); jurisdictions with significant physical cash usage seeking to make issuance more efficient (like Denmark, Germany, or Japan or even the US); central banks seek to meet the public need for digital currencies, manifested in the increasing use of private virtual currencies, and thereby avoid the more damaging consequences of such private currencies.