IDFC FIRST Bank has partnered with ToneTag, a proximity and voice tech solution provider, to enable acceptance of Digital Rupee at Merchant outlets. This partnership comes at the back of a pilot program launched by the Reserve Bank of India (RBI). RBI, recently announced the launch of Central Bank Digital Currency (CBDC) for retail users.

This initiative is in the first phase of its implementation with four banks including IDFC FIRST Bank. Through this initiative, the currency is issued in the same denominations and distributed through financial intermediaries and the users will be able to transact through a digital wallet offered by the participating banks. The digital rupee ((e₹-R) offers features of physical cash like trust, safety and settlement finality. Like cash, the CBDC will not earn any interest and can be converted to other forms of money, like deposits with banks.

“This solution will change how merchants transact, and IDFC FIRST Bank is a partner in this collaboration. Digitisation of cash payments is one more step in making transactions easier for our customers,” said Madhivanan Balkrishnan, chief operating officer (COO) of IDFC FIRST Bank.

The Retail CBDC will be mainly used for retail payments just like “Cash”. It will be a e₹-R signifying legal tender in the form of a digital token and issued in the same denominations as paper currency and coins and will be distributed through intermediaries, i.e., banks.

“In this pilot, ToneTag will provide solutions through which merchants will be enabled to accept the digital currency. With this launch, India becomes one of the only few countries to take this leap of digitalising cash and reap its great potential to reduce counterparty credit and liquidity concerns, as well as increase the efficiency of payments and securities settlement," said Kumar Abhishek, founder and chief executive officer (CEO) of ToneTag.

The main drivers for considering the issuance of CBDC in India, among others, is the need to reduce operational costs associated with managing physical cash, promote financial inclusion, improve the payments system's resilience, efficiency and innovation, said the company. Further, it will increase the settlement system's efficiency, foster innovation in cross-border payments, and give the general public access to uses that private virtual currencies can offer without the risks involved.