The Reserve Bank of India’s (RBI)’s first pilot for the retail digital rupee kicked off on Thursday with four lenders: SBI, ICICI Bank, YesBank and IDFC First Bank.

The exercise began in four cities of Mumbai, New Delhi, Bangalore and Bhubaneswar.

The pilot comes a month after the RBI launched another project for the wholesale digital rupee that can be transacted among certain financial institutions.

The retail digital rupee will be in the form of a digital token that represents legal tender. The RBI will issue digital currency in the same denominations as paper currency and coins. The token will bedistributed by banks.

This retail central bank digital currency (CBDC) will initially be available to select customers and merchants. The four banks have sente-mails and SMS to some of their customers asking if they are interested in the new form of transaction.

During the pilot, individuals or select retail customers of the banks can transact in the digital rupee app using ae-wallet offered by the lender.

Customers can use the digital rupee wallet to make payments to merchants and individuals, who are part of the closed user group (CUG) pilot. Payments to merchants can be made through a unique QRcode at merchant touchpoints.

According to Jaya Vaidhyanathan, CEO, BCT Digital, which provides fintech solutions, the CBDC has some inherent benefits, being a sovereign currency.

``The primary advantage is that it ensures settlement finality and reduces settlement risks in the financial system. Thus, the e-rupee offers the public enhanced access to digital money.” “It also could provide a robust and safe foundation for private sector innovations,” she said.