RBI to launch deposit tokenisation pilot on October 8: Details here

The Reserve Bank of India will launch a deposit tokenisation pilot on October 8 using its wholesale CBDC as the base layer to test blockchain-backed digital settlements across banks

The Reserve Bank of India (RBI) will launch a pilot on deposit tokenisation on Wednesday, an official at the central bank said.

 

Digital tokenisation refers to the process of converting assets such as deposits, stocks, and bonds into digital representations recorded on a blockchain.

 

What is deposit tokenisation?

  In the case of deposit tokenisation, deposits held at banks would be represented as tokens, which can then be used, transferred, or settled more fluidly across systems. 

 

The RBI will employ the wholesale segment of its central bank digital currency (CBDC) as the underlying layer for the exercise, Chief General Manager Suvendu Pati said at an event in Mumbai on Tuesday. He noted that the central bank is collaborating with “a few banks” on the project.

 

Why is CBDC being used as underlying layer?

 

The wholesale segment of CBDC is designed primarily for interbank or institutional settlement. Using that as the underlying layer ensures that the tokenised deposits are anchored to a central counterparty and benefit from the integrity and finality of central bank money.

 

More experiments planned

 

“From a regulatory standpoint for tokenisation of an underlying asset, we believe integrity and enforceability have to be established,” Pati said. “Risks in asset tokenisation are manageable and can be addressed through regulatory guardrails.”

 

Pati further added that the central bank is also exploring experiments with tokenisation in money market instruments, including commercial papers.

 

How do tokenised deposits work?

 

The process starts when a customer deposits their selected asset with a trusted custodian. In return, the custodian issues a corresponding amount of digital tokens on a blockchain network.

 

While the customer securely holds the underlying asset, the investor can freely trade these tokens across various exchanges or platforms. This approach offers greater flexibility and liquidity compared with traditional investments, which often involve lengthy and cumbersome procedures for buying or selling.

 

When was CBDC pilot launched?

 

The RBI launched a wholesale CBDC pilot on November 1, 2022, to streamline the settlement of transactions in the government securities market.

 

Following this, a retail CBDC pilot was introduced on December 1, 2022, focusing on person-to-merchant (P2M) and person-to-person (P2P) transactions in select cities.

This approach is expected to make transactions faster, cheaper, and more secure.