Today the Reserve Bank of India announced it plans to start its first wholesale digital rupee pilot tomorrow. Earlier this month, it published a paper outlining its central bank digital currency (CBDC) plans which included both a wholesale and retail CBDC. The test that starts tomorrow is to settle secondary market transactions in government bonds.
The goal is to reduce transaction costs by removing the need for centralized intermediaries to guarantee settlement and reduce the need for collateral to address settlement risk. In India, the Clearing Corporation of India Limited (CCIL) is the central counterparty through which government securities are usually settled.
Based on what’s learned from this pilot, the plan is to progress to other wholesale transactions and cross border payments.
The nine banks involved in this pilot are the 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.
For cross border payments, the question is which project it will join. The two large Asian multi-CBDC projects are Dunbar out of Singapore and MBridge out of Hong Kong. Logically one would expect MBridge because Hong Kong, China and the UAE are involved and respectively rank two, three and four as Indian export partners. In fifth place is Singapore. However, the recent MBridge trials had several observers, and India was not among them.
The central bank is planning its first closed pilot for a retail CBDC within the month and plans to share details closer to the time. The number one motivation is to reduce the costs of cash management.