Digital Rupee Pilot for Wholesale Segment To Begin from 1st November: RBI
Moneylife Digital Team 31 October 2022
The Reserve Bank of India (RBI) is launching a pilot project from 1 November 2022 for its digital rupee or central bank digital currency (CBDC) for the wholesale segment (e₹-W). The first pilot for the retail segment (e₹-R) would be launched in a month at select locations, the central bank says. 
 
The use case for the pilot for the wholesale segment is a settlement of secondary market transactions in government securities. "Use of e₹-W is expected to make the inter-bank 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.
 
Going forward, other wholesale transactions and cross-border payments will be the focus of future pilots, based on the learnings from this pilot," RBI says.
 
Nine banks, including State Bank of India (SBI), Bank of Baroda (BoB), Union Bank of India, HDFC Bank, ICICI Bank, Kotak Mahindra Bank, Yes Bank, IDFC First Bank and HSBC are participating in the pilot. 
 
Commenting on the pilot for the retail segment, RBI says, "The first pilot in digital rupee - retail segment (e₹-R) is planned for launch within a month in select locations in closed user groups comprising customers and merchants. The details regarding the operationalisation of e₹-R pilot shall be communicated in due course."
 
Earlier this month, RBI shared a concept note on CBDC. RBI 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 a liability on a central bank's balance sheet," it says in the concept note.
 
According to RBI, CBDC can be classified into two broad types, general purpose or retail (CBDC-R) and wholesale (CBDC-W). "Retail CBDC would be potentially available for use by all, viz. private sector, non-financial consumers and businesses while wholesale CBDC is designed for restricted access to select financial institutions. While wholesale CBDC is intended for the settlement of interbank transfers and related wholesale transactions, retail CBDC is an electronic version of cash primarily meant for retail transactions," it says.
 
The central bank says retail CBDC can provide access to safe money for payment and settlement as it is a direct liability of RBI. Wholesale CBDC has the potential to transform settlement systems for financial transactions and make them more efficient and secure. Going by the potential offered by each of them, it added that there may be merit in introducing both CBDC-W and CBDC-R.
 
In February this year, while presenting the Budget for 2022-23, finance minister (FM) Nirmala Sitharaman announced the introduction of a digital rupee issued by RBI. The FM said that the CBDC will give a significant boost to the digital economy. "Digital currency will also lead to a more efficient and cheaper currency management system, and it will use blockchain and other technologies," she says. (Read: RBI Shares Concept Note on Digital Rupee or Central Bank Digital Currency)
 
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