The Reserve Bank of India (RBI) on Tuesday started the pilot project for its central bank digital currency (CBDC), or digital rupee. This comes months after Union Finance Minister Nirmala Sitharaman made the announcement in her budget speech, stating that the move will give a major boost to the economy.
The current rollout of the e-rupee is meant for the wholesale segment only.
The central bank said that it will launch the first pilot of the digital rupee for the retail segment within a month in select locations in closed user groups comprising customers and merchants.
Banks' participation
State Bank of India (SBI), Bank of Baroda, Union Bank of India, HDFC Bank, ICICI Bank, Kotak Mahindra Bank, Yes Bank, IDFC First Bank and HSBC have been identified for the pilot project.
According to Press Trust of India (PTI) sources, ICICI Bank sold GS 2027 securities to IDFC First Bank using Central Bank Digital Currency (CBDC) during the pilot launch. In all, there were 48 deals amounting to Rs 275 crore done with the digital rupee.
Across the globe, more than 60 central banks have expressed interest in CBDCs with a few introducing them under pilot projects across both retail and wholesale categories. Many others are researching, testing, and/or launching their own CBDC framework, according to PTI.
Usage
Digital rupee will be used for large payments and settlements. According to the RBI, it will be used as the settlement amount on the purchase and sale of government securities, i.e., government bonds.
RBI had said that 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.
Also, efficiency, lower fee requirements, faster settlement, increased transparency and lower privacy would translate to everyday lives, experts said.
Effect on payments space
On its impact on payment space, Debraj Dutta, Senior Business Development Manager at Montran India, said the digital rupee will bring in resiliency and efficiency to the payments space.
“CBDC and the central bank’s RTGS will jointly augment the Delivery-Versus-Payment mechanism for secured and guaranteed payment and settlement of funds. CDBC interfacing with RTGS will complement the Central bank's vision of interoperability, transparency, accessibility and financial inclusivity,” he said.
As per Harish Prasad, MD, Banking Solutions - India, FIS, the pilot launch will form a good base for a low-risk, speedy rollout of the CBDC-W across all participants in the government securities market, as well as for a rollout in other areas such as inter-bank settlements in relation to RTGS, NEFT and other NPCI-managed payment systems such as NACH, NFS, IMPS, UPI and Rupay.
“And, this can eventually be extended to support international cross-border settlement use-cases via interconnection with CBDC networks of other countries,” he said.
Experts say that in case of e-rupee, there will be no need for an interbank settlement. It will be carried out in a more real-time situation and at less cost.
Raghavendra Rao Balakrishna -Deputy Managing Director, Corporate Account Group & Global Markets, CC at
State Bank of India, said that bank deposits will not be impacted with a full scale launch of CBDC.
It could lead to greater financial inclusion and bring about innovations and efficiency, while boosting the economy.
First Published: Nov 2, 2022 5:18 PM IST
