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Reserve Bank of India Launches Wholesale CBDC Pilot for Short-Term Loans

The Reserve Bank of India (RBI) launches a wholesale CBDC pilot for short-term loans, aiming to explore its use in the call money market.

Key Takeaways

  • The Reserve Bank of India (RBI) is initiating a pilot program for wholesale Central Bank Digital Currency (CBDC) to test its applicability in the call money market.
  • The RBI had previously launched a wholesale CBDC pilot for settling government bonds but saw diminishing interest in the use case.
  • To stimulate interest in wholesale CBDCs, the RBI will introduce call money, a short-term interest-earning loan, allowing financial institutions to lend and borrow money at market rates.
  • The pilot will explore atomic settlements using blockchain and the addition of smart contracts for programmability, potentially allowing tokenization of collateral.

The Reserve Bank of India (RBI) is taking another step forward in its exploration of Central Bank Digital Currencies (CBDCs) with the launch of a wholesale CBDC pilot program. This initiative aims to investigate the feasibility of utilizing CBDCs within the call money market, a significant segment of India’s financial landscape.

RBI’s Revolution

According to sources familiar with the matter, the RBI is initiating this new round of testing after an initial wholesale CBDC pilot, launched in November 2022 for settling government bonds, failed to sustain enthusiasm within the market.

To reignite interest in wholesale CBDCs, the RBI plans to introduce the concept of “call money” – a short-term, interest-earning loan arrangement that facilitates lending and borrowing among banks and financial institutions at market-determined interest rates. Although specific details remain scarce, the RBI intends to collaborate with commercial banks for the distribution and utilization of wholesale CBDCs.

An undisclosed source revealed, “We have started the wholesale CBDC pilot in the call money market, and some deals have also taken place.” This pilot will also assess the viability of atomic settlements utilizing blockchain technology and incorporate smart contracts for programmability. Financial institutions participating in the pilot may leverage programmable functions to ensure timely repayment of borrowed funds and explore the potential tokenization of collateral.

This move aligns with the RBI’s plans for the wholesale digital rupee in the call money market, initially discussed at the beginning of 2023. RBI’s executive director, Ajay Kumar Choudhary, hinted at a potential launch date in Q4, stating, “Interbank borrowing in wholesale CBDC we are going to start this month itself. Either this month or next month.”

While RBI Governor Shaktikanta Das hinted at further wholesale CBDC initiatives at the Global Fintech Fest 2023, the specifics related to call money were not disclosed.

Globally, wholesale CBDCs are gaining traction, driven by their potential for cross-border payments and the opportunities presented by tokenization. Various jurisdictions, including Brazil, Korea, and the European Union, are actively exploring the use of wholesale CBDCs to enhance payment systems.

To Conclude

The RBI’s decision to launch a pilot program for wholesale CBDCs in the call money market is a strategic move to revitalize interest in this digital currency within the Indian financial sector. By incorporating atomic settlements and smart contracts, the RBI aims to explore innovative use cases and foster greater adoption of CBDC technology among financial institutions. As wholesale CBDC initiatives gain momentum worldwide, India’s measured approach aligns with its successful retail CBDC rollout, ensuring a smooth transition and avoiding potential pitfalls associated with rapid implementation.