The Reserve Bank of India (RBI) has unveiled its plans to expand the Central Bank Digital Currency (CBDC) pilot program in the fiscal year 2023-2024.
The Indian Central Bank stated in its annual report for the fiscal year 2022-2023 that it aims to enhance the CBDC by incorporating a wider range of use cases and functionalities. To achieve this, it plans to broaden the existing trials in CBDC-Retail and CBDC-Wholesale and expand the CBDC-Retail pilot to additional cities and partner banks.
The RBI’s CBDC, known as the e-Rupee or Digital Rupee, is a digital form of the Indian currency, and there are two variants of it: CBDC-Wholesale (CBDC-W) and CBDC-Retail (CBDC-R). CBDC-Retail is designed to be accessible to individuals, non-financial consumers, and businesses, while CBDC-Wholesale is intended for limited access and will only be available to selected financial institutions. The RBI believes that deploying CBDC-W will enhance the efficiency of the interbank market.
The CBDC-Wholesale trial program, specifically for the settlement of secondary market transactions involving government securities (G-secs), began on November 1, 2022. Nine banks, including 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, have participated in the CBDC-Wholesale trial.
According to the RBI, conducting settlements in central bank currency through CBDC-W would reduce transaction costs by eliminating the need for infrastructure related to settlement guarantees or collateral for mitigating settlement risk.
The Central Bank publicly launched the CBDC-Retail (e-Rupee) pilot program on December 1, 2022, and allowed users to hold and transact with the digital currency. Akin to physical cash, the retail e-Rupee was released in various denominations, including 50 paise, 1, 2, 5, 10, 20, 50, 100, 200, and 500 e-rupees. In contrast, the wholesale e-Rupee (CBDC-W) does not have predetermined denominations.
The RBI’s proposed concept note suggests a two-tier distribution strategy for the retail Digital Rupee, with banks handling distribution and payment services while the RBI oversees the issuance and redemption of the e-Rupee.
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