The Reserve Bank of India (RBI) announced that it is starting the first pilot for its retail digital rupee on December 1, marking the first step towards the adoption of a retail digital rupee or retail central bank digital currency (retail CBDC). This explainer helps understand the concept of a retail CBDC and the RBI’s pilot project.
What do we mean by retail CBDC?
The central bank issues two kinds of money. The first is wholesale money used by commercial banks for interbank transactions. Wholesale money is popularly known as reserves. The second is retail money which is used by the public for transactions. Retail money as we all know is popularly called cash. Both wholesale and retail money are liabilities of the central bank and thus are the most trusted form of currency.
The graph below explains these ideas in a better way. We see money having three attributes: central bank-issued money, universally accessible money and electronic money. There are reserves issued by central banks and are already electronically available. Thus, the transition of reserves to wholesale CBDC is much easier. The RBI had announced a pilot for wholesale CBDC last month for settlement of secondary market transactions in government securities.