Reserve Bank of India to Launch First Pilot of Digital Rupee

Reserve Bank of India to Launch First Pilot of Digital Rupee

The Reserve Bank of India (RBI) is launching its first digital rupee pilot on Nov. 1. The pilot phase will be carried out with the participation of nine banks. The RBI said the settlement in central bank money would reduce transaction costs by preempting the need for settlement guarantee infrastructure or for collateral to mitigate settlement risk.

RBI’s First CBDC Pilot Starts on Nov. 1

The Reserve Bank of India (RBI) announced on Monday that "The first pilot in the digital rupee wholesale segment (e₹-W) shall commence on November 1, 2022." The announcement adds:

"Nine banks, viz., 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 been identified for participation in the pilot."

"The use case for this pilot is the settlement of secondary market transactions in government securities," the RBI described. The use of e₹-W is expected to make the interbank market more efficient. Settlement in central bank money would reduce transaction costs by preempting the need for settlement guarantee infrastructure or for collateral to mitigate settlement risk."

The RBI noted that future pilots will focus on other wholesale transactions and cross-border payments. They will take into account the shortcomings of the first pilot.

The central bank further detailed:

"The first pilot in the digital rupee retail segment (e₹-R) is planned for launch within a month in select locations in closed user groups comprising customers and merchants."

Earlier this month, the Indian central bank published a report explaining various aspects and risks of its central bank digital currency (CBDC).

According to the Atlantic Council’s Geoeconomic Centre, 105 countries, representing over 95% of global GDP, are currently exploring a CBDC. The Bank of International Settlements (BIS) also released a report in May showing that nine out of ten central banks globally are exploring CBDCs. The BIS said, "The emergence of stablecoins and other cryptocurrencies has accelerated the work on CBDCs."

Meanwhile, the US has not decided whether to issue a central bank digital currency. Federal Reserve Chairman Jerome Powell recently said that the digital dollar will take at least a couple of years. Some lawmakers are not convinced about the need for a digital dollar, including Fed Governor Christopher Waller, who said last week that he is not a big fan of the Fed's issuing a central bank digital currency (CBDC).