RBI To Expand Use Cases Of CBDC Based On Learnings From Pilot Projects

The Reserve Bank of India (RBI) is planning to expand the use cases of digital rupee or the Central Bank Digital Currency (CBDC) based on the learnings from wholesale as well as retail pilots.

The central bank launched the pilot for wholesale CBDC on November 1, followed by the retail pilot on December 1.

“The CBDC’s retail pilot will provide the public with a risk-free medium of exchange as it represents a direct liability of the central bank, with features of physical cash like trust, safety and immediate settlement finality in digital transactions,” the RBI said in its ‘Financial Stability Report’. 

Last month, RBI Governor Shaktikanta Das said that the CBDC would be anonymous, akin to the currency notes. The governor added that there would be no difference between CBDC and bank notes and all the laws applicable to currency notes would be applicable to the digital rupee.

Talking about the retail pilot for digital rupee, the RBI in the report said that it is looking to add more banks to test the use cases of CBDC. 

The pilot for retail CBDC, which began with four banks, is being carried out in a closed user group inclusive of customers and merchants. While announcing the launch of the retail pilot, the central bank said it had shortlisted eight banks – State Bank of India, ICICI Bank, Yes Bank, IDFC First Bank, Bank of Baroda, Union Bank of India, HDFC Bank, and Kotak Mahindra Bank – for it.

The pilot project aims to test the robustness of the entire process of digital rupee creation, distribution and retail usage in real-time. The project is currently testing the use cases of person-to-person (P2P) and person-to-merchant (P2M) transactions. 

On the basis of observations drawn from it, the central bank would test other features, applications and architecture in future pilots, the report said.

Meanwhile, CBDC’s pilot for the wholesale segment is testing settlement of secondary market transactions in government securities with participation of nine banks.

“It (CBDC) is expected to make the inter-bank market more efficient and reduce transaction costs by pre-empting the need for settlement guarantee infrastructure or for collateral to mitigate settlement risk,” the report said.

On the basis of the pilot project, the central bank will focus on wholesale and cross-border transactions in the upcoming CBDC pilot projects.

Notably, CBDC’s wholesale pilot clocked a daily average of INR 325 Cr in November 2022, while the retail CDBC pilot project recorded INR 3 Cr worth transactions in the first two days of its launch.

The central bank has been a staunch opponent of private cryptocurrencies and the top officials of the central bank have spoken about their concerns multiple times. The RBI has also sought a ban on private cryptocurrencies. One of the objectives behind the launch of CBDC is to reduce the attractiveness of private cryptocurrencies.