The wholesale digital rupee will be used on a trial basis starting on Tuesday, initially for the settlement of transactions in government securities, making the Reserve Bank of India (RBI) one of the first major central banks in the world to begin a pilot project with its own virtual currency.

The banking regulator also announced Monday that the pilot project for a retail version of the digital rupee will be launched in a month. The banking regulator has steadfastly maintained that allowing private digital currency like bitcoins poses risks to financial stability.

'The application case for this trial comprises settlement of secondary market transactions in government securities,' the RBI said in a statement. 'The introduction of e-W is predicted to boost interbank market efficiency.'

On October 7, the RBI said that a pilot study to test the central bank digital currency (CBDC), often known as the digital rupee, in particular use cases will shortly begin. It had also stated that a full central bank examination of scope and costs was necessary before expanding the use of virtual currency.

India is one of the first significant economies to begin a wholesale CBDC trial, even though there have been few CBDC test cases globally in a User Acceptance Testing (UAT) context.

'Govt. securities are now traded and settled among the nine banks in real time. Anita Mishra, MD & Head of Markets & Securities Services, HSBC India, explained that during the pilot phase, the central bank will regularly issue the CBDC currency to each bank's CBDC account and on demand, the bonds will settle in the SGL account with day end and pre-trade checks to ensure end-to-end operationalization. Before delving further into other use cases and Distributed Ledger Technology, the goal is to make sure the operational aspect is fully functional (DLT). The regulator added that central bank money settlement will lower transaction costs by avoiding the requirement for infrastructure for settlement guarantee systems or for collateral to lessen settlement risks.

Based on the lessons learned from this trial, future pilots would concentrate on other wholesale transactions and cross-border payments, it said. According to the central bank, the first pilot in the Digital Rupee-Retail segment (e-R) would go live in a month in a few select locations with limited user groups made up of customers and retailers. The RBI has previously stated that for digital transactions to be considered legal tender, there needs to be some level of anonymity, at least for small-value transactions.