RBI Likely To Expand CBDC Pilots To Call Money Market, Interbank Borrowing

The Reserve Bank of India (RBI) is reported to expand its pilots with respect to Central Bank Digital Currency (CBDC) by stepping into the call money market and interbank borrowing. It is also reported that RBI aims for 1 million transactions per day through the CBDC pilot by December. CBDC pilots were launched last year in both wholesale and retail segments.

RBI sources, as reported by CNBC-TV18, said that the central bank is planning to go into the call money market and interbank borrowing concerning the CBDC pilot. The reason was cited that CBDCs pilot and CBDCs are not being used globally.

In regards to retail CBDC, sources said that only 13 banks are participating in 26 locations. They further added that the target of 1 million retail transactions per day is likely to be achieved by December if not earlier. Also, till July, CBDC recorded around 25,000 transactions, and the volumes in August have been lower.

The pilot in the wholesale segment, known as the Digital Rupee -Wholesale (e₹-W), was launched on November 1, 2022, with the use case being limited to the settlement of secondary market transactions in government securities. Use of (e₹-W), is expected to make the inter-bank market more efficient.

In December last year, the Finance Ministry 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.

Further, the pilot in the retail segment, known as digital Rupee-Retail (e₹-R), was launched on December 01, 2022, within a closed user group (CUG) comprising participating customers and merchants.

As per the ministry, RBI had identified eight banks for phase-wise participation in the retail pilot project. The first phase includes four banks, namely the State Bank of India, the ICICI Bank, the Yes Bank and the IDFC First Bank. Subsequently, another four banks, viz., the Bank of Baroda, the Union Bank of India, the HDFC Bank and the Kotak Mahindra Bank will participate in the retail pilot.

The other steps being taken by RBI for the full operationalisation of CBDC include expanding the scope of the pilots gradually to include more banks, users and locations based on feedback received during the pilots, the Minister stated that time.

Central Bank Digital Currency (CBDC) is a digital form of currency notes issued by a central bank. While most central banks across the globe are exploring the issuance of CBDC, the key motivations for its issuance are specific to each country's unique requirements.