The Reserve Bank of India (RBI) will launch the first pilot for retail digital rupee on 1 December 2022.

The retail digital rupee will be in the form of a digital token that represents legal tender. 

Announcing a pilot for retail central bank digital currency (CBDC), the RBI today said it will issue digital currency in the same denominations that paper currency and coins are issued.

The retail digital currency will be distributed through banks. Users will be able to transact through a digital wallet offered by the participating banks and stored on mobile phones/devices.

Four banks, including State Bank of India (SBI), ICICI Bank, Yes Bank and IDFC First Bank, will initially participate in this.

The central bank has identified eight banks for phase-wise participation in this trial. Besides the four in the initial period, the other banks to join the trial later include Bank of Baroda, Union Bank of India, HDFC Bank and Kotak Mahindra Bank.

Transactions in digital currency can be carried out between person-to-person (P2P) and person-to-merchant (P2M). Payments to merchants can be made using QR (Quick Response) codes displayed at merchant locations.

The RBI said the retail digital currency will offer features of physical cash like trust, safety and settlement finality.

"As in the case of cash, it will not earn any interest and can be converted to other forms of money, like deposits with banks," the central bank said.

The pilot will cover Mumbai, New Delhi, Bengaluru and Bhubaneswar. This will later extend to Ahmedabad, Gangtok, Guwahati, Hyderabad, Indore, Kochi, Lucknow, Patna and Shimla. 

The central bank today said the pilot will test the robustness of the entire process of digital rupee creation, distribution and retail usage in real time. Different features and applications of the e₹- R token and architecture will be tested in future pilots, based on the learnings from this pilot.

"The pilot would cover select locations in closed user group (CUG) comprising participating customers and merchants" the RBI said.

The scope of pilot may be expanded gradually to include more banks, users and locations as needed, the central bank added.

Digital currency or rupee is an electronic form of money that can be used in contactless transactions.

On 1 November, the RBI had launched the first pilot in the digital rupee for the wholesale segment.