India’s Central Bank RBI Reportedly Working On a CBDC Pilot Test

As per the latest reports, the Indian central bank - Reserve Bank of India (RBI) - has been reportedly working with other state-controlled banks and fintech companies to conduct a trial run for its central bank digital currency (CBDC) aka Digital Rupee.

On Monday, September 5, local news publication Moneycontrol reported that the RBI shall be conducting the tests ahead of the CBDC rollout in this financial year. For this, the RBI has partnered with U.S-based fintech firm FIS which has been conducting workshops on CBDCs with other central banks globally.

The fintech firm will advise the RBI on topics of programmable payments, offline payments, interest bearing CBDC, new monetary policy toolkit, financial inclusion, fractional banking issues, and cross-border CBDC payments. Julia Demidova, senior director at FIS, told MoneyControl:

“FIS has had various engagements with the RBI...and, of course, our connected ecosystem could be extended to the RBI to experiment various CBDC options. Whether it is a wholesale or retail CBDC transaction, our technology can also be extended to commercial banks where they can test and tokenise central bank money in the form of digital regulated money”.

To conduct its trial test on CBDC, the RBI has partnered with four public sector banks including State Bank of India, Punjab National Bank, Union Bank of India and Bank of Baroda.

A senior official from one of these PSU banks said: “There is a pilot on CBDCs. The RBI may come with the launch this year. When it will exactly roll out the product and specifications is to be seen”.

The Indian government has been skeptical over the use of public cryptocurrencies and sees it as a threat to financial stability. Earlier this year, the government introduced heavy taxes on profits made through crypto trading to deter investor participation.

However, industry experts believe that a blockchain-based CBDC could support financial inclusion while ensuring that risk fraud and money laundering get minimized. Besides, it could provide a stronger infrastructure for digital payments in the country.

Digital payments have skyrocketed in India over the last two year owing to the COVID-19 pandemic. Thus, it could be the right time for the government to ride on the digital money wave and introduce a CBDC.