India’s Central Bank Trials CBDC in Call Money Market

• RBI begins a CBDC pilot in India’s call money market, with nine major banks participating.
• The central bank also launched a retail CBDC called e-rupee, with Rs 16.39 crore in circulation.

The Reserve Bank of India (RBI) has recently taken a significant step in exploring central bank digital currency (CBDC) by initiating a pilot program in the call money market. This move underlines the RBI’s commitment to investigate the potential applications of digital currency within India’s financial landscape.

Wholesale CBDC Pilot Takes Off

In a recent development, sources close to the matter have revealed that the RBI has initiated a wholesale CBDC pilot in the call money market. This move aims to facilitate interbank transactions for short-term lending and borrowing, often spanning just one day, with rates determined by market dynamics.

Nine prominent banks, including 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, have joined forces with the RBI in this wholesale CBDC pilot. It’s worth noting that these same banks were part of a previous pilot program involving government securities, launched on November 1, 2022, to settle secondary market transactions.

Timeline and Insights from RBI Officials

Ajay Kumar Choudhary, an executive director at the RBI, disclosed at the G20 Leaders’ Summit in New Delhi that the central bank was planning to introduce the wholesale version of its CBDC, the Digital Rupee-Wholesale, in the call money market by October. Emphasizing the importance of thorough testing before rollout, Choudhary expressed the RBI’s commitment to ensuring a smooth transition to digital currency.

Earlier, on September 6, RBI Governor Shaktikanta Das, speaking at the Global Fintech Fest 2023, outlined the central bank’s approach to CBDC. He stressed the need for a non-disruptive introduction and mentioned a calibrated and phased implementation strategy. This cautious approach reflects the RBI’s commitment to maintaining stability in the financial ecosystem.

A Step Towards Digital Transformation

The introduction of CBDC in India was announced in the Union Budget 2022-23 by Finance Minister Nirmala Sitharaman. Subsequently, necessary amendments to the relevant section of the RBI Act, 1934 were made with the passage of the Finance Bill, 2022. These legislative changes paved the way for the central bank’s ambitious digital currency initiatives.

In addition to the wholesale CBDC pilot, the RBI has also rolled out a pilot for the retail version of CBDC, known as the e-rupee. This digital currency is issued as digital tokens, representing legal tender, and is available in denominations equivalent to traditional paper currency and coins. Financial intermediaries like banks distribute the e-rupee, and participating banks offer digital wallets for convenient transactions.

Usage and Adoption Trends

As of the end of the fiscal year 2022-23, the e-rupee, encompassing wholesale and retail circulation, amounted to Rs 16.39 crore. Notably, the most circulated denominations of the e-rupee were Rs 500, followed by Rs 200 and Rs 100, according to data from the Reserve Bank of India’s Handbook of Statistics on the Indian Economy 2022-23.

RBI deputy governor T. Rabi Sankar shed light on the progress of the pilot testing for retail CBDC. Sankar revealed that approximately 15,000 daily transactions were taking place, indicating a growing interest and adoption of the e-rupee. He emphasized the need to scale this adoption, setting a target of 1 million daily transactions.

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