Reserve Bank of India Unveils the Pilot of its Digital Rupee

• The Reserve Bank of India (RBI) launched the pilot of its digital rupee (CBDC) for the wholesale segment.
• In the pilot program, the country’s Apex bank hopes to engage nine banks, including the State Bank of India.
• RBI aims to settle the government securities secondary market transactions with the Digital rupee pilot.
• It also plans to unveil a retail version within a month. 
• The development made India one of the first major economies to pilot wholesale CBDC.
• The trend is also catching on in other countries.

The Reserve Bank of India (RBI) has unveiled the pilot of its digital rupee (CBDC) today for the wholesale segment (e₹-W), the bank announced in a press release on October 31st, 2022. 

The Apex bank in the country aims to engage nine banks, including top lender State Bank of India, in the pilot. Other potential participants include the Bank of Baroda, Union Bank of India, HDFC Bank, ICICI Bank, Kotak Mahindra Bank, Yes Bank, IDFC First Bank, and HSBC.

With the rupee pilot use case, RBI hopes to settle secondary market transactions in government securities. It is worth noting the CBDC, as reported, manifested to enhance the efficiency of the interbank market.

The central bank also aims to unveil the pilot of the retail version of the asset in a month. RBI believes the country can achieve better financial stability with government-backed virtual assets. Further, it asserts that private digital assets, like BTC, pose great risks to the economy owing to their inherent volatility.

Occasioned by this development, India became one of the first major economies to initiate a wholesale CBDC pilot. According to Anita Mishra, MD & Head of Markets & Securities Services, HSBC India, the pilot aids real-time trading and settlement of government securities among the nine banks. 

“The aim is to ensure the operational part is fully functional before going deeper into other use cases and Distributed Ledger Technology (DLT), all of which will come with a good time,” Mishra hinted.

Mishra further stated that RBI, during the pilot phase, aims to issue the CBDC to the accounts of participating banks. This, according to her, will be done at regular intervals and on demand. 

Prior to the unveiling of this pilot, RBI had earlier issued a detailed report on the inherent potential and risks of its CBDC.

Other Countries Looking to Explore CBDCs

Meanwhile, other countries are also looking to dabble in the trend. A report from the Atlantic Council’s Geoeconomic Centre shows that about 105 countries are exploring CBDC.

Similarly, the Bank of International Settlements (BIS) in its report maintained that nine out of 10 central banks across the globe are exploring CBDCs. 

As of now, the U.S. has yet to decide whether to issue its digital currency. Jerome Powell, chair of the Federal Reserve Board, said creating a digital dollar would take a couple of years. 

On the Flipside

• Unlike cryptocurrencies, which aim to democratize and decentralize finance, CBDCs further centralize money and preserve the monopoly power of financial institutions.

Why You Should Care

The recent development may be a milestone because CBDCs can provide a reliable, sovereign-backed domestic payment and settlement system that can partly replace paper currency.

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