RBI Begins First Phase of Wholesale CBDC Pilot Program

The Reserve Bank of India (RBI) plans to start its first pilot program for its Central Bank Digital Currency (CBDC), the Digital Rupee or e-rupee.

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For this pilot program, the Indian apex bank has identified nine banks that will participate in the e-rupee testing. They include the 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.

In the end, this will make RBI one of the few central banks that has been able to take their CBDC project up to the pilot testing phase.

Firstly, the wholesale digital rupee will be used to perform the settlement of secondary market transactions in government securities on a trial basis. With the use of the e-rupee, it is believed that interbank market transactions will be more efficient and less stressful. 

As per a published statement, “Settlement in central bank money would reduce transaction costs by pre-empting the need for settlement guarantee infrastructure or for collateral to mitigate settlement risk. Going forward, other wholesale transactions, and cross-border payments will be the focus of future pilots, based on the learnings from this pilot.”

The next pilot program will involve the rollout of the retail digital rupee which is planned to commence within a month. Details of its operationalization are yet to be disclosed but it is known that the retail pilot phase will be held in different locations around the region, involving customers and merchants’ closed user groups. 

CBDC Gains Traction in India

The Reserve Bank of India has made a massive effort in terms of its CBDC development. At the end of the first half of the year, the central bank began to consider a graded approach to implement its digital rupee plans. Markedly, the pursuit for its CBDC became crucial to the country as it viewed cryptocurrencies like Bitcoin (BTC) to possess high financial risks due to their volatility.

“The Reserve Bank is engaged in the introduction of a central bank digital currency (CBDC) in India. The design of CBDC needs to be in conformity with the stated objectives of monetary policy, financial stability, and efficient operations of currency and payment systems,” RBI reported at that time.

In the early days of October, the bank released a 50-page concept note with contents that create awareness, and detail important features and considerations for the digital rupee that includes possible use cases, technology, and issuance mechanism. 

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