Blockchain for Banking News

Digital rupee: Money markets to use wholesale CBDC. Retail CBDC integrates UPI

digital rupee cbdc

A Reserve Bank of India (RBI) “source” told multiple Indian news outlets that the wholesale digital rupee trials have expanded to include call money markets. India is unusual because it launched both wholesale central bank digital currency (wholesale CBDC) and retail CBDC pilots almost simultaneously.

Last November, the RBI launched the first wholesale CBDC use case for the settlement of government bond transactions. By February the number of transactions using the wholesale CBDC had tailed off.

“RBI is now planning to go into the interbank borrowing market. The purpose of wholesale CBDC has been to try out different technologies…experimenting with technology is relatively easier for the wholesale pilot because participants are related,” sources told MoneyControl.

The call money market is the short term (one day) market where banks borrow or lend to each other. However, despite the “source” commenting that the participants are related, we understand that the call money market also includes Primary Dealers in addition to banks. Dealers use it for margin requirements in trading.

In other blockchain trials worldwide, the technology demonstrates significant benefits for intraday transactions. For example, this includes intraday repos, intraday FX swaps, and intraday trading. In the later case it ensures banks have the right mix of high quality liquid assets (HQLA) for regulatory purposes. Instant settlement is a key digital currency benefit. However, the ability to specify tight payment windows is more important for intraday transactions. 

Circling back to the Indian wholesale digital rupee, if several large payments are due to go out at 9 am tomorrow, the bank treasury department can still lend out excess funds overnight. But they can specify the money must be returned by 8.45 am. Given it’s all controlled by code and uses a risk free CBDC, there’s little risk for the bank.

Retail digital rupee and UPI

Meanwhile, the retail digital rupee trials are progressing. There’s been a major step forward in usability with the integration of UPI QR codes by seven banks so far. UPI is India’s popular instant payment system, so the ability for CBDC apps to read the QR codes at retail outlets is a major boost for usability.

India is currently about nine months into its CBDC pilot. In China, the pilot rollout started in April 2020 and it just starting to roll out “aggregated” QR codes that provide one code for the CBDC, AliPay, WeChat Pay and UnionPay Quickpass. The big difference is these other payment apps are not government ones.

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