The banking regulator, which has steadfastly maintained that allowing private digital money like bitcoin poses a risk to financial stability, also said on Monday that a pilot project for a retail version of the digital rupee would be launched within a month.
State Bank of India, Bank of Baroda, Union Bank of India, HDFC Bank, ICICI Bank, Kotak Mahindra Bank, Yes Bank, IDFC First Bank and HSBC are the nine banks identified to participate in the wholesale e-rupee (eW) pilot project.
How will RBI’s Central Bank Digital Currency (CBDC) work, how is it different from digital money?
“The use case for this pilot is settlement of secondary market transactions in government securities,” RBI said in a statement. “The use of eW is expected to make the interbank market more efficient.”
On October 7, the RBI had said it would soon start a pilot project to test the digital rupee — or central bank digital currency (CBDC) — in specific use cases. It has added that a broader virtual currency jurisdiction must await a thorough central bank analysis of scope and costs.
While there are several CBDC test cases around the world in a User Acceptance Testing (UAT) environment, India is one of the first major economies to launch a wholesale CBDC pilot.
“This is now for real-time trading and settlement of government securities among nine banks. During the pilot phase, the central bank will issue CBDC currency to each bank’s CBDC account at regular intervals and on demand, bonds will be settled in SGL accounts with end-of-day and pre-trade checks to ensure end-to-end operations,” said Anita Mishra. , MD & Head of Markets & Securities Services, HSBC India. “The goal is to get the operations side fully functional before delving into other use cases and Distributed Ledger Technology (DLT), all of which will come in due course.”
The regulator also said settlement in central bank money would reduce transaction costs by preempting the need for settlement guarantee infrastructure or collateral to reduce settlement risk.
“Moving forward, other wholesale transactions and cross-border payments will be the focus of future pilots, based on learning from this pilot,” he said.
The first pilot in the Digital Rupee Retail (eR) segment is planned to be launched within a month in selected locations in a closed user group comprising customers and merchants, the central bank said. The RBI has in the past stated that there should be a degree of anonymity – at least in small value digital transactions – to be an acceptable tender.
“Reasonable anonymity for small value transactions similar to the anonymity associated with physical cash may be a sensible option for CBDC-R,” the RBI said in its concept note.