Central Bank Digital Currency: India’s central bank digital currency makes a seamless debut in the world of real-time trading | Techy Kings


India’s central bank digital currency (CBDC) made a stable and glitch-free start to the world of real-time trading on Tuesday, with several banks using the Mint Road-backed virtual money to settle nearly 50 government bond transactions cumulatively worth about Rs 275 crore.

State Bank of India (SBI), Bank of Baroda, ICICI Bank and IDFC Bank are among the nine participating lenders said to have cut the inaugural CBDC offer for trade settlement in g-secs, three people with knowledge of the matter told ET . Nine lenders, including HDFC Bank, HSBC and Kotak Mahindra and Yes Bank, are participating in the central bank’s pilot project that began Tuesday. Each bank is said to have made at least four-five offers.

The individual banks could not immediately be reached for comment.

“The pilot project has received an overwhelming response from all participants,” said Sushanta Mohanty, general manager, Bank of Baroda. “We participated through the inaugural agreement. This digital currency should gain more traction.”

Each participating bank has a digital currency account, known as a CBDC Account, maintained with the Reserve Bank of India (RBI). Banks must first transfer money to this account from their respective current accounts.

If bank X buys bonds from bank Y, X’s CBDC account will be debited, with a corresponding credit in the same Y bank account.

Unlike the existing settlement process where banks settle trades cleanly on a dedicated platform known as NDS-OM, the CBDC pilot project requires each trade to be settled, billed on a ‘gross basis’.

Digital settlement will occur within a trading day – i.e. T+0 – unlike T+1 in general government securities trading.

For now, the balance in the CBDC for the bank will be sent back to its current account.

“RBI may expand the use case of CBDC in other wholesale transactions if the pilot project is successful,” said a trader from a participating bank.

Cross-border and institution-to-institution payments may be part of the potential future use.

Currently, the cryptographic technology is being used for a pilot project, which will develop over a period of time, sources said. Cryptography is a secure means of communication.

“Blockchain can play an important role in CBDC, reducing the possibility of fraud,” said Ram Rastogi, chairman, Fintech Users Association (FACE). “Wholesale transactions are mainly account-based. Retail transactions will be token-based, with smaller denominations when they start.”

A retail pilot project with CBDC is expected to be launched at a later stage.

The real danger in CBDC, according to Rastogi, is that there is no limit to the level of control the government can impose on the public if the money is purely electronic and provided directly by the government.

All the nine banks are in regular contact with the RBI to find out any technical problems that may arise. CBDC accounting process, smooth transactions, accurate debit/credit entry are billed as keys to the success of digital currency through this pilot project.


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