InvestorQ : Can you tell me about the highlights of the recent central bank digital currency launched by the RBI in India?
Sam Eswaran made post

Can you tell me about the highlights of the recent central bank digital currency launched by the RBI in India?

Moii Chavate answered.
4 weeks ago

The RBI officially launched its Central Bank Digital Currency (CBDC) or the digital rupee through the wholesale debt markets with a number of deals being executed using the digital rupee. Here is what you need to know about the CBDC or the digital rupee.

a) To begin with, the CBDC is only launched for the wholesale market and RBI has not launched the Digital Rupee for the retail segment. The pilot is restricted to the wholesale segment. Over the next month or so, the retail pilot is also expected to be out.

b) According to the RBI, the use of the Central Bank Digital Currency (CBDC) can theoretically make the interbank market more efficient and transparent. It is also expected to reduce the transaction costs as settlement guarantee infrastructure or collateral will not be needed now due to real time settlements.

c) To begin with, a number of major banks are ready and are already participating in this wholesale pilot for the debt markets where government securities are traded. The list includes 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, with more to be added.

d) For the retail segment, as and when it is launched, the digital rupee (CBDC) will provide a safe and reliable means of payment for direct transfer programs, especially with respect to the directed government welfare programmes. There is a complete audit trail and the transfers are real time.

e) This can do away with a plethora of wallets that are floating around, many of whom don’t following best practices. CBDC can become an alternate to the plethora of wallets floating around and remember that the CBDC is backed by the RBI so automatically it has a lot more credibility and acceptance.

f) CBDC can be a boon to track the end use of funds, especially in microfinance and in MSME lending. CBDC can help lenders draw up a precise profile of the MSME borrowers. Above all, end use of funds can be monitored, and that has bene one of the major reasons for bank NPAs. Now that can be mitigated if not avoided altogether.

g) For the markets, it will speed up settlement and instead of T+1 or T+2, we are now talking about T+0 kind of settlement which his seamless. That is possible once the CBDC is more rampantly used. It can also reduce the lure of crypto, since the CBDC also has the backing of the central bank (RBI in this case).