September 19, 2023
India is already synonymous with futuristic technological advancements and innovations that extend to every industry. Finance is no exception to shifting global undercurrents and the Reserve Bank of India (RBI) has been at the forefront of several future-first transitions in recent years.
One such move has been the RBI’s move pertaining to the extension of the wholesale CBDC (central bank digital currency) as tokens for the purpose of interbank borrowing or the call money market. The apex bank of the country is reportedly planning this new feature rollout for the RBI digital currency in the near future as per various reports. Here’s what we know so far.
RBI’s big wholesale CBDC initiative
Here are some insights as to the RBI’s plans to boost money market efficiency:
- A pilot was launched in the wholesale category, called the Digital Rupee – Wholesale (e?-W) on 1st November 2022.
- However, the use case was only restricted towards secondary market transaction settlements in the case of Government securities.
- The RBI is reportedly planning to venture into the interbank borrowing segment. Wholesale CBDC has been leveraged for trying various technologies and experimenting is comparatively smoother for the pilot since the participants are related in this case.
- The CBDC introduction was declared by the Union Finance Minister Nirmala Sitharaman in the Budget for 2022-23. Amendments were made to the RBI Act, of 1934, with the Finance Bill 2022 being passed.
- The wholesale CBDC pilot started with the RBI choosing the State Bank of India, Union Bank of India, Bank of Baroda, HDFC Bank, Kotak Mahindra Bank, ICICI Bank, IDFC First Bank, YES Bank, and HSBC for the initiative.
- The apex bank has also launched its pilot for the CBDC’s retail version (e?-R) on the 1st of December, 2022. This works as a digital token that is representative of legal tender.
- It is already being issued in similar denominations as paper coins and currency via financial intermediaries like banks. Users can complete transactions with e?-R via digital wallets provided by these financial institutions.
- However, there are still no clear-cut instructions for promoting RuPay as per sources.
- There is no deadline for the conclusion of the pilot at present, with 10.83 crore transactions seen in August, adding up to a whopping Rs. 24,000 crore.
- The RBI has also shown numerous digital initiatives at the G20 Summit including PTP (Public Tech Platform) for Frictionless Credit, UPI One World, CBDC, Bharat Bill Payment System, and RuPay On-The-Go.
PTP will take visitors through the entire framework, beginning from onboarding to the dairy and KCC loan sanction and disbursement processes within a few minutes. It may completely transform rural credit sectors in the future while being used for distributing loans of smaller ticket sizes in the future too (personal loans and MSME loans). The RBI has also worked to showcase its digital rupee and its evolution along with conducting live transactions with the same at the summit. UPI One World will help visitors complete onboarding without possessing an Indian bank account.
RuPay On-The-Go will enable contactless payments through accessories used or worn regularly. BBPS will facilitate cross-border bill payments, complete with easier fintech integration and support for regular financial entities to execute domestic and cross-border transactions alike. RBI’s Innovation Pavilion at the G20 Summit venue saw the announcement being made on the starting of the wholesale CBDC pilot for interbank borrowing either this month or early next month.
The RBI is betting big on this project, with an aim towards touching 1 million transactions each day by end-2023 as compared to 20-25,000 for July. On the other hand, Punjab National Bank (PNB) has also announced its CBDC (central bank digital currency) launch with UPI (unified payments interface) interoperability being a key feature for the digital rupee-based mobile application. As can be seen, there are exciting developments afoot in the Indian banking and financial services industry. The Reserve Bank of India is focusing on technology-backed innovation, an approach that will only enhance operational efficiencies and ecosystem-wide transparency in the near future.
FAQs
- What is the call money market, and why is it significant?
The call money market (CMM) is the platform for short-term loans that are sometimes one-day loans, traded by financial institutions like banks. Lenders and borrowers in this market are majorly these banks or entities. CMM may be accessed by banks for meeting any reserve needs or for covering any sudden cash shortfalls on any specific date.
- How will wholesale CBDC benefit the call money market?
Wholesale CBDC will have a positive impact on the call money market. It will transform the interbank market by improving overall efficiency. The usage of central bank money for settlements will lower the costs of transactions greatly. This will be possible by pre-empting the requirement for any infrastructure for settlement guarantees or other collateral for the mitigation of settlement risks.
- What technology will be used for the wholesale CBDC?
The RBI is already using e?-R as its retail version pilot for the CBDC while Digital Rupee – Wholesale (e?-W) has also been introduced. The former is similar to a digital token that is representative of legal tender. There are several blockchain technology components that are being used for these initiatives.
- How will the RBI ensure the security of wholesale CBDC transactions?
The RBI is expected to take several measures towards ensuring greater security for wholesale CBDC transactions. It has already proposed two CBDC structures, namely account and token-based. It has already aligned itself towards the latter for retail while the wholesale sector may get the former. Usage will be secured through tokenization at the retail level, ensuring security against fraudulent payments, duplicate payments, and other issues. There could be dedicated security protocols implemented by the RBI for these initiatives.
