India’s wholesale CBDC: How has it faring one month since launch?

The Reserve Bank of India (RBI) on October 31, 2022, launched its pilot project for wholesale digital currency. In a statement, the RBI said the use case for the wholesale digital rupee is the settlement of secondary market transactions in government securities (G-Secs) as it would reduce transaction costs.

So, what is the status of wholesale central bank digital currency (CBDC) after a month of its pilot launch?

What do the numbers say about wholesale CBDC?

Since the launch of the pilot wholesale CBDC, trades worth Rs 7,140 crore were settled with the digital rupee in November, according to the data compiled from state-owned banks using the pilot service.

On the first day of the pilot project, G-Secs worth Rs 275 crore were traded. Data by the Clearing Corporation of India Ltd (CCIL) showed that a total of 48 trades were settled using CBDC, of which 24 deals of 7.38 per cent securities maturing in 2027 were made at a weighted average yield of 7.33 per cent, while 23 trades of 7.26 per cent securities maturing in 2032 were made at a weighted average yield of 7.41 per cent. One trade on the 6.54 per cent security maturing in 2032 was executed at a yield of 7.45 per cent.

"The settlement of trades with CBDC is taking place at a slower pace even after a month of the plot launch and trades worth Rs 300-400 crore are being done on a daily basis," dealers said.

“The volume is low, as it is in pilot stage. Most traders are just testing this currency and not taking positions in the market. For taking positions, they are still going by the normal trading practices on the NDS-OM,” said a dealer with a private bank who is using CBDC.

On November 7, G-Sec trades using the digital rupee stood at Rs 530 crore, of which trades worth Rs 500 crore were held in the 10-year benchmark 7.26 percent-2032 bonds, according to data compiled from NDS-OM CBDC trades. This was followed by Rs 20 crore and Rs 10 crore trades of 7.10 percent-2029 and 7.38 percent-2027 bonds, respectively.

Wholesale CBDC banks

The RBI, which started the pilot for wholesale CBDC with nine banks (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) is exploring ways to reduce transaction costs by removing the need for centralised intermediaries to guarantee settlement and reduce the need for collateral to address settlement risk.

IDFC First Bank, one of the nine banks selected for the wholesale CBDC pilot, will start an invite-only program for its select customers in Delhi and Mumbai. They have also shared a list of merchants in Mumbai and Delhi who are enabled to begin the pilot program.

“You can transact in e₹ through a convenient and safe digital wallet. This e₹ wallet will be like your physical wallet in digital form, on your Android device. Currently, it is not available for iOS users. We will open the application to more customers as and when we receive the intimation from the RBI,” the bank said on its website.

HSBC Group Chief Executive, Noel Quinn, in a report titled New forms of digital money could spur growth, said CBDCs could help spur further economic growth by making payments and settlements more efficient and cheaper.

“They could also fuel innovation across the financial sector. The near instant nature of CBDC payments is likely to lower the cost of issuing and trading bonds and other securities – and may also help with fiscal and monetary policy objectives by providing a means of making direct transfers to consumers to stimulate demand.”

Future of CBDC in India

RBI Governor Shaktikanta Das, on November 2, said that the wholesale digital currency is a major transformation in the way business is conducted.

"I think, in that sense also, it's going to be a major transformation of the way business is done and the way transactions are conducted. And the RBI is among the few central banks in the world which have taken this initiative," Das said.

Experts said that India will have a prominent say in framing global crypto regulations as it has taken over the G-20 group presidency for one year, starting from December 1, 2022.

Finance Minister Nirmala Sitharaman said crypto will be a major part of the agenda under its G-20 presidency.

"We would definitely want to collate all this and do a bit of study and then bring it on to the table of the G-20 so that members can discuss it and hopefully arrive at a framework or SOP (standard operating procedure) so that globally, countries can have a technology-driven regulatory framework," she said.