Secondary market transactions in govt securities: E-rupee used to settle Rs 275 cr govt bond trades

The Reserve Bank of India (RBI) on Tuesday took a major leap towards making the country’s monetary and payment systems more efficient with the launch of digital rupee, or e-rupee, to settle secondary market transactions in government securities. Digital rupee was used to settle transactions in government securities worth Rs 275 crore as part of a pilot project.

Nine participating banks executed 24 trades worth Rs 140 crore in 7.38 per cent 2027 bond, 23 trades totalling Rs 130 in 7.26 per cent 2032 bonds and one transaction in 6.54 per cent 2032 bond, according to data available with Clearing Corporation of India. 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 were identified by the RBI for participation in the pilot phase.

The use of the e-rupee wholesale segment (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 phase. “The RBI is further looking forward to focus on other wholesale transactions and cross-border payment; which can be projected as steps to ease the ways of financing for the general populace. Also, the payment systems through digital currency are affordable, accessible, convenient, efficient, safe, and secure; making them a better and trusted option for financing in the future,” said Mahesh Shukla, CEO & Founder, PayMe India.

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, the RBI said. 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.

A token-based e-rupee is viewed as a preferred mode for retail e-rupee as it would be closer to physical cash. 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.

On the other hand, the RBI prefers an account-based system for the wholesale segment, including government securities. 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.

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