Mumbai, India – The Reserve Bank of India (RBI) is reportedly embarking on a pilot program for a wholesale central bank digital currency (CBDC) aimed at assessing its utility within the call money market.
According to a report by Money Control, two individuals privy to the RBI’s plans have affirmed the central bank’s decision to launch a fresh round of testing. The RBI had initiated a wholesale CBDC pilot for settling government bonds in November 2022; however, interest in this use case had dwindled within two months.
To rekindle enthusiasm for wholesale CBDCs, the Indian central bank is forging ahead with call money, a short-term, interest-earning loan that allows banks and financial institutions to lend and borrow funds among themselves at market-determined interest rates. Though specific details are limited, the RBI is enlisting the services of commercial banks for its wholesale CBDC.
An unnamed source stated, “We have started the wholesale CBDC pilot in the call money market, and some deals have also taken place.”
Within this pilot program, the RBI will evaluate the feasibility of atomic settlements utilizing blockchain technology, coupled with the added capabilities of smart contracts for programmability. Participating banks may leverage the programmable feature to ensure prompt repayment of borrowed funds and explore the potential for tokenizing collateral.
Plans for employing the wholesale digital rupee in call money operations have been in motion since the beginning of 2023, with the RBI’s Executive Director, Ajay Kumar Choudhary, hinting at a potential launch date in Q4.
Choudhary mentioned, “It will be very soon. Interbank borrowing in wholesale CBDC we are going to start this month itself. Either this month or next month. We are testing it. Once we are ready, we will be able to start.”
While speaking at the Global Fintech Fest 2023, RBI Governor Shaktikanta Das alluded to further wholesale CBDC pilot programs, though he did not specifically mention their application in the call money market.
Globally, wholesale CBDCs are gaining traction, driven by their potential to revolutionize cross-border payments and enable tokenization. Brazil, South Korea, and the European Union are among the growing number of jurisdictions actively exploring the implementation of wholesale CBDCs to enhance payment systems.
India’s retail CBDC, on the other hand, has been met with considerable success. It has attracted over 50,000 users in the first two months and has expanded to new cities, added functionalities, and seen a surge in daily transactions, reaching 15,000. The RBI aims to achieve a daily transaction volume of one million.
The central bank has also been experimenting with cross-border payments for its digital rupee, with the Treasury Minister anticipating faster adoption rates for retail CBDCs compared to the wholesale counterpart. Despite these early achievements and future ambitions, the RBI remains committed to a “slow-and-steady” approach to ensure the success of the digital rupee without hiccups.
