RBI to conduct pilot for digital rupee today; details here
The interbank market is anticipated to become more effective with the use of the digital rupee
Representational Image. ANI
Today, 1 November, the Reserve Bank of India (RBI) will launch the digital rupee for the wholesale market as part of its pilot test program to evaluate and enhance the functionality of the currency.
Within a month, the central bank will begin a similar test for the retail sector in exclusive user groups comprising customers and owners, the RBI said on Monday. The pilot program will assess the “settlement of secondary market transactions in government securities” for the wholesale market, as per the central bank. It will involve nine lenders, 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.
The risks and advantages of introducing these currencies were outlined in a concept note on central bank digital currency (CBDC) that the RBI released in October. According to that, a central bank’s digitally issued legal tender is broadly defined as CBDC. Similar to sovereign paper currency but in a different format, it can be exchanged at par with current money and will be recognized as a means of payment, legal tender, and a secure place to keep assets. CBDCs would show up on a central bank’s balance sheet as a liability.
The interbank market is anticipated to become more effective with the use of the digital rupee. By pre-empting the need for settlement guarantee infrastructure or collateral to decrease settlement risk, settlement in central bank money would lower transaction costs, according to the RBI. Future pilot programs will concentrate on other wholesale transactions and cross-border payments as a result of the knowledge gained from this trial.
According to Mint, a banker with a lender that is taking part in the pilot said that planning for this initiative has been ongoing for some time because some specific back-end technology upgrades were required. Until now, the settlement has always taken place on a T+1 basis whenever government securities have been sold in the secondary market. In T+1, funds and securities are settled one business day following the order is made.
When a transaction occurs, money will be sent instantly because the nine banks have already created accounts with the RBI to conduct CBDC transactions. If a bank wishes to purchase from another bank Rs 100 crore of 10-year government security, 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 debited. Then, the buyer will receive the securities from the RBI’s account.
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