The Reserve Bank will launch the first pilot digital rupee today | Techy Kings


MUMBAI : The Reserve Bank of India will launch a digital rupee for the wholesale segment on November 1 as part of its first pilot test program to review and improve the functionality of the currency. The central bank will launch a similar test for the retail segment in a closed consumer group of customers and dealers within a month, the RBI said on Monday.

For the wholesale segment, the pilot will test the settlement of secondary market transactions in government securities. Nine banks—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—will participate in the pilot.

“The use of e -W (digital rupee) is expected to make the interbank market more efficient. Settlement in central bank money will reduce transaction costs by preempting the need for settlement guarantee infrastructure or collateral to reduce settlement risk. Other wholesale transactions and cross-border payments will be the focus of future pilots, based on learning from this pilot,” RBI said in a press release.

In October, RBI issued a concept note on central bank digital currency (CBDC), listing the risks and benefits of introducing this currency.

The RBI said the concept note “broadly defines a CBDC as a legal tender issued by a central bank in digital form. It is similar to sovereign paper currency but in a different form, is convertible at par with existing currencies and shall be accepted as a means of payment, legal tender and safe store of value. CBDCs will appear as liabilities on central bank balance sheets.”

A banker with a lender who was part of the pilot said preparations for the project had been going on for a long time because it required some specific back-end technology upgrades. “Today, a pilot transaction will take place in the government securities secondary market (G-sec) transaction. So far, whenever government securities are sold in the secondary market, settlement occurs on a T+1 basis,” said the banker quoted above, requesting anonymity. In T+1, settlement of funds and securities occurs one business day after orders are executed.

Nine banks have opened accounts with the RBI to transact in the CBDC, and when a transaction takes place, money is transferred instantly.

“Tell the bank to buy 100 crore 10 year Gsec from another bank. They will make the trade and the digital currency account of the buyer’s bank with RBI will be debited and the seller’s account will be credited on the same day. The securities will then move from the RBI account to the buyer,” the banker added.

The CBDC concept was first announced in the FY23 budget when finance minister Nirmala Sitharaman said the RBI would launch a digital equivalent of the rupee this fiscal. The RBI has gone ahead with the launch of CBDCs to counter the threat posed by cryptocurrencies to financial stability.

Anita Mishra, managing director and head of securities markets and services at HSBC India, said the bank is looking forward to working with the RBI and participating banks in this pilot and rolling out further use cases. “This will lead to real-time solutions and cost efficiencies in piloting and, over a period of time, pave the way for various use cases, both domestically as well as for cross-border transactions,” Mishra said.

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