G-sec transactions using digital rupee recorded highest volume since inception on November 7

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The transactions in government securities (G-Sec) in the secondary market using the central bank's digital currency recorded the highest volume on November 7 since its inception on the back of higher trades settled in the 10-year benchmark bond.

On November 7, G-Sec trades using the digital rupee were worth 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.

Meanwhile, on November 4, trades worth Rs 385 crore were settled using CBDC. On November 3, they were worth Rs 200 crore, Rs 290 crore on November 2, and Rs 275 crore on November 1.

Today, by 1 pm, trades worth Rs 260 crore were executed using the digital rupee in the G-Sec secondary market.

Last week, Moneycontrol reported that Union Bank of India has executed more than 25 percent of the overall government securities trade in the secondary market in the first three days under the wholesale pilot announced by the central bank for the rollout of digital currency.

An official from the Union Bank of India said that the bank is trading bonds worth Rs 70 crore on a daily basis since the start of the pilot.

Also read: Union Bank executes over 25% secondary market G-sec trades using CBDC in three days: Official

What is CBDC?

CBDC is the central bank digital currency, a legal tender issued in digital form. It is the same as fiat currency and can be exchanged one-to-one with government-issued money. In other words, CBDC is the same as the legal currency we use–just that it’s in digital form.

CBDC will ease transactions. An RBI report described CBDC as something that will provide a safe, robust, and convenient alternative to physical cash. Depending on various design choices, it can also assume the complex form of a financial instrument, the RBI said in the report.

Pilot launch

The Reserve Bank of India (RBI) on October 31 announced pilot launches of the digital rupee for specific use cases. Accordingly, the first pilot in the Digital Rupee - Wholesale segment (e₹-W) commenced on November 1, 2022.

The central bank identified 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 to participate in the pilot project in this segment. These banks will use the new platform to trade in government securities among themselves using digital currency.

Also read: Exclusive | RBI provides platform for G-Sec trading via digital rupee

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, the central bank said.

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

Speaking at the annual banking conference organised jointly by the Federation of Indian Chambers of Commerce and Industry (FICCI) and the Indian Banks' Association (IBA), the RBI governor said the pilot for wholesale central bank digital currency is a landmark moment in the history of money.

"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.

On the retail pilot front, Das said at an event that they do not want to rush the pilot of retail CBDC. "We proposed to commence the pilot project for retail shortly," he said.