The Reserve Bank of India, the country's central bank, will on Tuesday begin a pilot wholesale digital currency with the goal of reducing transaction costs and the need for collateral when trading government securities.
Using the digital rupee will pre-empt the need for settlement guarantee infrastructure or for collateral to mitigate settlement risk, the Indian central bank said in a statement.
Nine banks including HSBC, ICICI Bank, State Bank of India and Union Bank of India were participating in the pilot, which will be a model for further pilots to test other wholesale transactions and cross-border payments using the digital currency, the RBI said.
A digital rupee pilot designed for retail transactions is expected to start within a month.
The digital rupee pilot "is expected to make the inter-bank market more efficient," the RBI said in the statement. "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."
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