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RBI to kickstart e-rupee pilot in G-Secs today

The Reserve Bank of India (RBI) on Monday announced that the first pilot in the Digital Rupee, or e-rupee, in the wholesale segment (e?-W) will commence in government securities from November 1, 2022.

Nine banks — 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 been identified for participation in the pilot, the RBI said.

According to the RBI, 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,” the RBI said.

“Going forward, other wholesale transactions, and cross-border payments will be the focus of future pilots, based on the learnings from this pilot,” the central bank said.

The first pilot in Digital Rupee – Retail segment (e?-R) is planned for launch within a month in select locations in closed user groups comprising customers and merchants. The details regarding operationalisation of e?-R pilot will be communicated in due course, it said. On October 7, 2022, the RBI had announced that it will soon commence pilot launches of Digital Rupee (e?) for specific use cases.

The central bank says e-rupee, or CBDC, can be structured as token-based or account-based. A token-based CBDC would be a bearer instrument like banknotes, meaning whosoever holds the tokens at a given point in time would be presumed to own them. In a token-based CBDC, the person receiving a token will verify that his ownership of the token is genuine. A token-based CBDC is viewed as a preferred mode for CBDC-R as it would be closer to physical cash.

An account-based system would require maintenance of record of balances and transactions of all holders of the CBDC and indicate the ownership of the monetary balances. In this case, an intermediary will verify the identity of an account holder. This system can be considered for CBDC-W, the RBI said.

There are two models for issuance and management of CBDCs under the RBI’s consideration — direct model (single tier model) and indirect model (two-tier model). In the direct model, the central bank will be responsible for managing all aspects of the digital rupee system such as issuance, account-keeping and transaction verification.

An indirect model would be one where the central bank and other intermediaries (banks and any other service providers), each play their respective role. In this model, the central bank will issue CBDC to consumers indirectly through intermediaries and any claim by consumers will be managed by the intermediary. E-rupee is the same as a fiat currency and is exchangeable one-to-one with the fiat currency. Only its form is different. It can be accepted as a medium of payment, legal tender and a safe store of value. The digital rupee would appear as liability on a central bank’s balance sheet.




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