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."
© 2023 The Block. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.