[November 1, 2022] The first pilot of India’s CBDC, the e-rupee, commenced today. It will test the wholesale segment (e₹-W) in bond transactions with nine banks. The retail segment (e₹-R) is planned for launch within a month.

The Reserve Bank of India (RBI) announced that it will start limited pilots of its CBDC, e-rupee (e₹) in October. It published a comprehensive concept note, with the outline of e-rupee's vision and implementation plan․

The key motivations for exploring the issuance of CBDC in India among others include reduction in operational costs involved in physical cash management, fostering financial inclusion, bringing resilience, efficiency, and innovation in the payments system, adding efficiency to the settlement system, boosting innovation in cross-border payments space and providing public with uses that any private virtual currencies can provide, without the associated risks. The use of the offline feature in CBDC would also be beneficial in remote locations and offer availability and resilience benefits when electrical power or mobile network is not available.

In its design considerations, RBI is following “the least disruptive” path. This strategy translated into the following design choices for its e-rupee:

  • Type of CBDC: Retail or Wholesale? Both, Retail and Wholesale
  • Model of Issuance: Direct (by RBI) or Indirect (by Banks)? Indirect, by Banks
  • Form: Token (like Bitcoin) or Account based (like Ethereum)? Token based e₹-R and Account based e₹-W
  • Economic type: Interest bearing or not? (Hmm, tough choice… RBI wants such an instrument, but does not want to harm commercial bank deposits) There will be interest functionality, but with limitations for the general public
  • Privacy: Anonymous or AML/CF compliant? Anonymity for small value and traceable for high value (so, basically, not anonymous)
  • Denominations: minimum value or Fixed denominations? Fixed denominations (50, 100, 500 etc.)
  • Ledger: DLT or non-DLT? Non-DLT

The wishlist of e-rupee includes much-discussed CBDC functionality like programmability, offline use, and seamless integration with existing local and cross-border systems. And, of course, security.

Having listed the above, we need to add that RBI’s vision is to “crystallise the design choices in the initial stages, but keep the technological considerations flexible and open-ended in order to incorporate the changing needs based on the evolution of the technological aspects of CBDC”

So, going back to the wholesale e-rupee tests, it is reported that it engaged nine commercial banks, which are 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

On the first of November, as part of a pilot, RBI used e₹-W to settle secondary market transactions in Indian government 5-year and 10-year bonds worth Rs 2.75 billion ($33.29 million).

“The use case for this pilot is settlement of secondary market transactions in government securities. Use of e₹-W is expected to make the inter-bank market more efficient. Settlement in central bank money would reduce transaction costs by pre-empting the need for settlement guarantee infrastructure or for collateral to mitigate settlement risk. Going forward, other wholesale transactions, and cross-border payments will be the focus of future pilots, based on the learnings from this pilot” – says the announcement from RBI.

Retail segment e₹-R tests are planned within a month, so soon we’ll see the whole picture. We are looking forward to seeing the pilot progress and sharing our observations with you. We continue to observe, stay tuned!

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