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

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