PremiumA total of 48 trades were settled using CBDC, data published by the CCIL showed. Of these, 24 deals of 7.38% securities maturing in 2027 were made at a weighted average yield of 7.33%, while 23 trades of 7.26% securities maturing in 2032 were at a weighted average yield of 7.41%
MUMBAI : Government securities worth ₹275 crore were traded using the Reserve Bank of India’s (RBI) central bank digital currency (CBDC) on Tuesday, on the first day of a pilot project in the wholesale segment.
A total of 48 trades were settled using CBDC, data published by the Clearing Corp. of India (CCIL) showed. Of these, 24 deals of 7.38% securities maturing in 2027 were made at a weighted average yield of 7.33%, while 23 trades of 7.26% securities maturing in 2032 were at a weighted average yield of 7.41%. One trade was executed on the 6.54% security maturing in 2032 at a yield of 7.45%.
Nine banks—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—were identified to participate in the pilot project in this segment. A dealer said RBI opened a new platform called ‘Negotiated Dealing System-Order Matching (NDS-OM) CBDC’ for these banks to conduct the transactions, which they used to buy and sell government securities among themselves.
The new platform used the request for quotation, a document that details a buyer’s requirements and asks the seller to respond with pricing and payment terms. Banks can sell or buy securities at the available price on the normal NDS-OM platform, where secondary market transactions are executed.
“Before the transaction is executed, banks send a request to RBI to convert the cash lying in the cash reserve ratio (CRR) account into digital rupee. This then gets stored in the CBDC digital rupee account opened by each bank with RBI," said the treasury head at a private sector bank.
The transactions were settled instantly by RBI, without the help of any third party.
The securities were then credited to the banks’ SGL (subsidiary general ledger) account maintained with the Reserve Bank.
Normal trades are settled on a T+1 basis through CCIL, meaning the settlement happens one business day after the trade is executed.
“The benefit of this transaction was that there was no intermediary risk. Banks were settling with the central bank directly. Banks were also able to monitor their digital rupee account and convert the remaining CBDC to CRR at any time," the banker cited above said on the condition of anonymity. Typically, banks have to maintain CRR daily. CRR is the percentage of a bank’s total deposits that it needs to maintain as liquid cash.
To be sure, CBDC wholesale transactions are free as it is settled with the RBI directly, unlike regular transactions where banks pay transaction charges to CCIL.
RBI said the use of e ₹-W (digital rupee) is expected to make the interbank market efficient. Settlement in central bank money would cut transaction costs by doing away with the need for settlement guarantee infrastructure or collateral to mitigate risks. Other wholesale transactions and cross-border payments will be the focus of future pilots, based on learnings from this pilot, it said.
The first pilot in the digital rupee-retail segment (e ₹-R) is planned within a month in select locations in closed user groups comprising customers and merchants, RBI said, adding that it will issue details regarding the operationalization of the pilot in due course.
In October this year, RBI released a concept note on CBDC, listing the risks and benefits of introducing these currencies.
RBI said the concept note “broadly defines CBDC as the legal tender issued by a central bank in a digital form. It is akin to sovereign paper currency but takes a different form, exchangeable at par with the existing currency and shall be accepted as a medium of payment, legal tender and a safe store of value. CBDCs would appear as liability on a central bank’s balance sheet."