Today, the Reserve Bank of India announced that it plans to start its first wholesale digital rupee pilot tomorrow. Earlier this month, it published a document outlining its central bank digital currency (CBDC) plans, which included a wholesale and retail CBDC. The test that begins tomorrow is to liquidate secondary market operations in government bonds.

The goal is to reduce transaction costs by eliminating the need for centralized intermediaries to guarantee settlement and reducing the need for collateral to address settlement risk. In India, the Clearing Corporation of India Limited (CCIL) is the central counterparty through which government securities are normally settled.

Based on what was learned from this pilot, the plan is to move on to other wholesale transactions and cross-border payments.

The nine banks involved in this pilot are 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.

For cross-border payments, the question is which project will you join? The two big Asian multi-CBDC projects are Singapore’s Dunbar and Hong Kong’s MBridge. Logically, one would expect MBridge because Hong Kong, China and the United Arab Emirates are involved and are respectively second, third and fourth as Indian export partners. In fifth place is Singapore. However, MBridge’s recent trials featured multiple observers, and India was not among them.

The central bank is planning its first closed pilot for a retail CBDC within the month and plans to share details closer to that time. The number one motivation is to reduce cash management costs.