RBI’s wholesale pilot of CBDC losing steam after one year, data shows

Wholesale Pilot of CBDC

The wholesale pilot of the Central Bank Digital Currency (CBDC) started by the Reserve Bank of India (RBI) last year is seen as losing steam as the number of trades and settlement volumes has constantly fallen over the last few months, according to the data.

According to data compiled by Moneycontrol, the settlement of trades in government securities (G-Secs) using digital rupee was in the range of Rs 500-600 crore a day in the first month of launch, which in the later months fell to just Rs 10-60 crore a day.

Similarly, the number of trades has fallen from 45 to 60 a day in the first month to just two to six a day in the later months.

“We are getting some good response in the retail segment of CBDC, despite the presence of other payment methods like UPI, net banking, etc.," a senior executive of a private bank said on condition of anonymity.

"But in the wholesale segment, we are not getting that response. Since this is a pilot and we have been asked by the regulator to conduct it, we are doing it,” the executive said.

The RBI launched the wholesale pilot of CBDC on November 1 to settle trades of G-Secs using the digital rupee.

In the pilot stage, nine banks, viz., State Bank of India (SBI), Bank of Baroda (BoB), Union Bank of India (UBI), HDFC Bank, ICICI Bank, Kotak Mahindra Bank, Yes Bank, IDFC First Bank, and HSBC, have been identified for participation.

According to Sanjay Agarwal, Senior Director, Care Ratings, the concept of CBDC is very new to the country, and banks do not find any arbitrage opportunities. Hence, volumes, in terms of settlement amount and number of trades, are low.

“Also, this is just the pilot stage, so banks are taking a mild interest,” Agarwal said.

On October 12, Moneycontrol reported that the central bank had started a wholesale pilot of CBDC in the call money market.

Later, on October 19, RBI Executive Director Ajay Kumar Choudhary confirmed this development.

“It (the wholesale pilot of CBDC) has started, but volumes are not pretty good, as it is a test of the system, accounting, and multiple things. The pilot is to test all those things,” Choudhary said on the sidelines of the Associated Chambers of Commerce and Industry of India's 18th Annual Summit & Awards, Banking & Financial Sector Lending Companies on October 19.

The call money market is where banks borrow from or lend to each other for the short term, usually a day, at market-determined rates.

Also read: CBDC a quick, efficient means for cross-border transactions, says RBI Governor

What does data show?

The data compiled by Moneycontrol on the wholesale pilot of CBDC showed that in November, transactions worth Rs 7,140 crore were settled using the digital currency, and the number of trades registered was 759.

In December, transactions worth Rs 1,870 crore were settled using CBDC, with 232 trades.

Later, the transaction amounts started falling to the range of Rs 130-500 crore a month.

However, October witnessed Rs 445 crore worth of trades in G-Secs being settled using the digital rupee.

Retail CBDC

In December last year, the central bank started the retail pilot of digital currency.

Last month, RBI Deputy Governor T Rabi Sankar, on the sidelines of the Global SME Finance Forum 2023, said that around 15,000 transactions were taking place a day in the pilot testing of retail CBDC.

“It is roughly around 15,000 transactions a day or so; we will have to take it to one million,” Sankar said.

The RBI has completed the interoperability with the Unified Payments Interface (UPI) QR codes, and now the focus will be on transactions, he added.

With interoperability, customers can send funds from a CBDC wallet or directly from a bank account using a single QR code.

Soon after this, most banks, including SBI, Yes Bank, and PNB, among others, announced the interoperability of UPI and CBDC.