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India’s Central Bank Launches Wholesale CBDC Pilot For Inter-Bank Borrowing

The Reserve Bank of India has commenced a pilot program for a wholesale Central Bank Digital Currency (CBDC) designed for inter-bank borrowing.

The central bank had previously announced its intentions to conduct a trial of the wholesale CBDC, and this pilot program officially began in October. Ajay Kumar Choudhary, the executive director of the RBI, provided an update on the progress, stating:

“The wholesale pilot of CBDC has started, but volumes are not significant at this stage. It is a test of the system, accounting, and various other factors. The pilot is aimed at testing all these aspects.”

Wholesale CBDC Pilot Includes Nine Major Lending Banks

The pilot program for the wholesale Central Bank Digital Currency (CBDC) involves nine major lending banks, all of which are already participants in the government securities (g-sec) pilot program. These banks include:

  • State Bank of India
  • Bank of Baroda
  • Union Bank of India
  • HDFC Bank
  • ICICI Bank
  • Kotak Mahindra Bank
  • Yes Bank
  • IDFC First Bank
  • HSBC

In a parallel effort, the Reserve Bank of India (RBI) introduced a wholesale CBDC pilot in November 2022 for settling transactions in the secondary government securities market. Additionally, the central bank initiated a retail CBDC pilot in December 2022, focusing on peer-to-peer (P2P) and peer-to-merchant (P2M) transactions. These initiatives collectively demonstrate the RBI’s commitment to exploring and testing the applications of digital currency within the Indian financial ecosystem.

RBI Aims A Million Transactions Per Day By December

The central bank is firmly dedicated to the broader adoption of retail Central Bank Digital Currency (CBDC) and has set a goal of reaching one million daily transactions by December 2023.

At present, the Reserve Bank of India is actively engaged in several aspects of the digital rupee, with a particular focus on enhancing interoperability. The central bank anticipates a significant surge in transaction volumes by October to November, building on the current daily rate of 18,000 to 20,000 transactions.

The primary objective behind these pilot programs is to analyze user behavior, which will play a pivotal role in shaping the design choices and policy framework for the CBDC. This user data will be invaluable in shaping the future of digital currency in India.

The overarching objective is to enable financial transactions while safeguarding the integrity of individual financial systems.

In addition to the CBDC initiatives, the Reserve Bank of India (RBI) has launched a public technology platform designed for seamless credit. This platform was introduced on August 17, 2023, and has generated considerable interest among lending institutions.

In terms of regulatory developments, the RBI is in the process of formulating self-regulatory organization (SRO) norms for various regulated entities. These SRO norms are anticipated to be implemented within the current year. While cryptocurrency regulations are on the horizon, the RBI is taking a gradual approach, with the initial focus on establishing SRO mechanisms.

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