The Reserve Bank of India (RBI) has called on five banks to work on the retail pilot project of its central bank digital currency (CBDC). State Bank of India, ICICI Bank, IDFC Bank, HDFC Bank, and Yes Bank are on the shortlist of five banks of RBI, according to a report in the Economic Times.

The central bank could add more banks to run the retail pilot, which is expected to launch soon, the Economic Times added.

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According to the report, the banks have been selected to run the pilot along with the support of the National Payments Corporation of India (NPCI) and the RBI. Some customer and merchant accounts will be shortlisted to roll out the retail digital rupee pilot soon.

The central bank is working on two fronts to test the central bank digital currency (CBDC). First on the wholesale market, for which a pilot project is already underway, and the other for retail, CBDC-R, whose full-fledged rollout is expected to change the way of payments in India.

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The report mentioned that the RBI is considering anonymity for small-value payments of up to Rs 50,000. 

RBI was still under discussion on whether retail CBDC should be made interoperable with the existing digital payments system or build a new framework for its usage. The first one refers to enabling the QR codes and the NPCI’s Unified Payment Interface (UPI) for transacting CBDCs. 

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The two types of CBDC, retail and wholesale, are conceptualised to serve different purposes. Where retail CBDC can be used by all, while wholesale CBDC will have access restricted to select financial institutions.

Based on the same blockchain technology, these CBDCs are aimed at reducing the dependence on cash. Cash transactions currently account for nearly 80% of total retail transactions in the Indian economy. 

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The RBI became one the first major central banks around the globe to launch a pilot project with its own virtual currency, using the digital rupee on trial for settlement of transactions in government securities.