India’s Central Bank Prepares for CBDC Trial Along with Local Fintechs

India’s central bank – Reserve Bank of India (RBI) – is currently in talks with some of India’s state-controlled banks and fintech companies to conduct a trial of its central bank digital currency (CBDC).

On Monday, September 5, an official of an unnamed public sector bank said that the CBDC trial could be happening in the coming months. The RBI is also reportedly consulting with a US-based financial services company FIS. Julia Demidova, the 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”.

Last month on august 25, FIS announced the launch of its CBDC Virtual Lab. The US firm has also been quite active in the CBDC sphere appearing in a host of conferences around the topic.

The FIS will be advising the central banks on a range of topics such as programmable payments, offline payments, interest-bearing CBDC, a new monetary policy toolkit, financial inclusion, fractional banking issues, and cross-border CBDC payments, said Demidova.

India’s Central Bank Gearing Up on CBDC

While India’s central bank has raised red flags over the use of public cryptocurrencies, it is keen on having a CBDC running on the blockchain. The CBDC aka Digital rupee will function under the proper regulatory framework.

To run the pilot CBDC project, the RBI shall be working with four public sector banks. These include the State Bank of India, Union Bank of India, Punjab National Bank, and Bank of Baroda. Another senior official from a PSU bank stated: “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”.

Vikram Babbar, a partner and lead of financial services at EY, said that Unified Payments Interface (UPI) has been at the forefront of using digital payments in India. This has further paved the way for a central bank digital currency (CBDC).

“From an Indian standpoint, CBDC would further support financial inclusion and at the same time ensure that the risk of fraud and money laundering is minimised. This would additionally entail setting up the right infrastructure and monitoring mechanisms before the formal launch. For a country like India, testing with a pilot launch and planning a phased implementation may be an apt start,” added Babbar.