The Reserve Bank of India (RBI) recently launched its first pilot project to use central bank digital currency (CBDC) in the wholesale market for secondary trade in government securities (G-secs) beginning November 1. Within a month, a second pilot project on retail use of the digital rupee will begin in closed user groups.



  • According to the RBI, e-Rupee can be structured as ‘token based’ or ‘account-based’.
    • A token-based CBDC is a bearer instrument, similar to banknotes, which means that whoever owns the tokens at any particular time is believed to own them.
    • In contrast, an account-based system would necessitate the keeping of a record of all CBDC holders’ balances and transactions, as well as indicating ownership of the monetary balances.
    • In a token-based CBDC, the individual receiving the token proves his ownership of the token is genuine, whereas an intermediary verifies the identity of an account holder in an account-based CBDC.
    • A token-based CBDC is preferred for CBDC-Retail since it is more similar to physical cash, but an account-based system can be considered for CBDC-Wholesale.
  • The RBI is considering two models for the issuance and management of CBDCs — direct model (single tier model) and indirect model (two-tier model).
    • In the direct model, the central bank will be in charge of all aspects of the digital rupee system, including issuance, accounting and transaction verification.
    • The central bank and other intermediaries (banks and other service providers) each play their respective roles under an indirect model.
      • Here, the central bank will issue CBDC to consumers indirectly through intermediaries and any claim by consumers will be managed by the intermediary.


About a Central Bank Digital Currency (CBDC)

  • If a virtual currency (be it a cryptocurrency) is recognised by the central bank it is known as the CBDC.
  • CBDCs are the virtual or electronic form of fiat currencies (like the Indian rupee). Hence, a CBDC is the legal tender issued by a central bank in a digital form.
    • It would appear as a liability on a central banks balance sheet.
  • Many countries are exploring CBDC, with the Bahamian Sand Dollar was the first to debut CBDC in 2020, while Jamaica’s JAM-DEX was the most recent.


Indias approach to virtual currencies

  • In 2018, the RBI issued a directive prohibiting banks from providing services to the cryptocurrency ecosystem.
  • The Supreme Court of India overturned this decision, calling it disproportionate given that such currencies were not prohibited in the country.
  • A cryptocurrency law — the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 — that was supposed to be passed last year has yet to be enacted.
    • The bill seeks to prohibit all private cryptocurrencies in India.
    • However, it is expected to promote the underlying technology of cryptocurrency and its uses.
  • Currently, there is no regulation or any ban on the use of cryptocurrencies in the country.
  • In her 2022-23 Budget speech, the Finance Minister of India announced the launch of the Digital Rupee – a central bank digital currency (CBDC) – from 2022-23.