RBI To Launch Digital Rupee (e₹) Pilot Project Today For Wholesale Segment

The RBI is going to become one of the first major central banks in the world to start a pilot project with its own virtual currency i.e. Digital Rupee (e₹).

On November 1st, the Reserve Bank of India will launch the digital rupee for the wholesale market as a component of its first pilot test program to evaluate and enhance the functionality of the currency. 

Within a month, the central bank would begin a similar experiment for the retail sector in exclusive user groups comprising consumers and business owners, the RBI said on Monday.

The pilot will examine how secondary market government securities transactions are settled for the wholesale market. 

The pilot will involve nine institutions, including 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.

The inter-bank market is anticipated to become more effective with the use of e-W (digital rupee). 

By eliminating the requirement for infrastructure to support settlement guarantee systems or for collateral to decrease settlement risk, settlement in central bank funds would lower transaction costs. 

Based on the lessons learned from this pilot, future pilots will concentrate on other wholesale transactions including cross-border payments.

The risks and advantages of establishing these currencies were outlined in a concept note on central bank digital currency (CBDC) that the RBI released in October.

When a transaction occurs, money will be sent instantly because the 9 banks have already created accounts with the RBI to conduct CBDC transactions.

Let’s say a bank wishes to purchase from another bank 100 crores of 10-year Gsec. As soon as the transaction is completed, the seller’s account will be credited and the buyer’s bank’s digital currency account with the RBI would be deducted. Then, the buyer will receive the securities from RBI’s account.

Finance Minister Nirmala Sitharaman initially mentioned the idea of CBDC in the FY23 budget when she indicated RBI would launch the digital rupee this fiscal. 

To combat the alleged concerns presented by cryptocurrencies to financial stability, RBI has been pushing for the formation of CBDC.