RBI Starts Pilot Programme for Wholesale Digital Rupee in Call Money Market

13 Oct 2023

Context:

  • The Reserve Bank of India (RBI) initiated a pilot program for the wholesale segment of its central bank digital currency (CBDC),  also known as Digital Rupee-Wholesale (e-W), in the interbank call money market.

What is digital rupee and how it works?

  • Central bank digital currencies (CBDCs) are a form of digital rupee issued by a country’s central bank. They are similar to cryptocurrencies, except that their value is fixed by the central bank and equivalent to the country’s fiat currency.
    • Fiat money is a government-issued currency that is not backed by a commodity such as gold.
  • CBDC Pilot: Also known as Digital Rupee-Wholesale (e-W), it was started for the government securities market in November 2022. 
    • It was restricted to facilitating the settlement of secondary market transactions in government securities. 
    • Subsequently, the pilot for the retail CBDC commenced in December.
  • The Operational Process: For the digital rupee pilot remains the same, except for the settlement, which will now be carried out using the CBDC. 
    • The settlements will be in T+0 mode, indicating that trades will be settled on the same day.

Call Money Market:

  • Call money rate is the rate at which short term funds are borrowed and lent in the money market.
    • Duration: The duration of the call money loan is 1 day. 
  • Call Money Market: Banks engage in short-term borrowing and lending activities among themselves, with interest rates determined by prevailing market conditions.
  • MIBOR (Mumbai Interbank Offer Rate): MIBOR is the benchmark interest rate used as reference rate at which banks in India lend to one another in the interbank market. 
  • Other interbank offer rates
    • LIBOR (London Interbank Offered Rate
    • Euribor (Euro Interbank Offered Rate)
    • TIBOR (Tokyo Interbank Offered Rate)
    • HIBOR (Hong Kong Interbank Offered Rate)
    • SIBOR (Singapore Interbank Offered Rate) 

News Source: Business Standard

Attempt the PY Prelims Question

Central Bank digital currencies, consider the following statements :

1. It is possible to make payments in a digital currency without using US dollar or SWIFT system.

2. A digital currency can be distributed with a condition programmed into it such as a time-fame for spending it.

Which of the statements given above is/are correct?

(a) 1 Only

(b) 2 Only

(c) Both 1 and 2

(d) Neither 1 nor 2

Ans: (C)

 

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