India’s Central Bank Begins First Digital Currency Pilot, With 9 Banks Participating

An Reserve Bank of India (RBI) logo is seen on the main entrance gate of the RBI headquarters in Mumbai on April 1, 2014. India's central bank kept key interest rates steady in a widely anticipated move less than a week before the start of national elections, due to start April 7. (Indranil Makherjee/AFP/Getty Images)

The Reserve Bank of India (RBI) on Tuesday launched its first pilot program for a wholesale central bank digital currency (CBDC), with the participation of nine banks that it had shortlisted.

“The use case for this pilot is settlement of secondary market transactions in government securities,” the RBI said in a statement (pdf).

The nine banks include the 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.

The wholesale CBDC is expected to improve inter-bank market efficiency as settlements in central bank money would reduce transaction costs by pre-empting the need for settlement guarantee infrastructure or collateral to mitigate settlement risk, it stated.

“Going forward, other wholesale transactions and cross-border payments will be the focus of future pilots, based on the learnings from this pilot,” the RBI added.

The RBI is also planning to launch the first pilot for retail CBDC “within a month in select locations in closed user groups comprising customers and merchants,” according to its statement.

Singapore to Trial Digital Currency

Singapore has also announced plans to pilot its digital currency. The Monetary Authority of Singapore (MAS) said Monday that four trial projects will be conducted to test the concept of “purpose-bound” digital currency.

MAS stated that purpose-bound money will enable senders to specify conditions, such as validity period and the types of shops where it can be used, when making transfers of digital currency.

The pilot projects will involve Singapore’s largest banks—DBS Bank, OCBC Bank, and UOB. MAS said the money used in pilot programs could be in the form of central bank digital currency, tokenized bank deposits, or stablecoins.

“The introduction of e-money provided the ability to store value electronically and carry it with us. Digital currencies go beyond that, allowing money to be programed and used for specific purposes only,” Sopnendu Mohanty, the central bank’s chief fintech officer, said in a statement.

Mohanty said that MAS will look forward to collaborating with industry participants and policymakers in subsequent phases of the programs.