RBI to allow CBDC in call money market

  • September 6, 2023
  • Posted by: OptimizeIAS Team
  • Category: DPN Topics
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RBI to allow CBDC in call money market

Subject: Economy

Section: Monetary Policy

Context: RBI plans to allow using Central bank Digital Currency (CBDC) in call money market

Key Points:

  • At present RBI has two pilot projects – one for CBDC (Retail) and other for CBDC (Wholesale) are going on.  RBI is now planning to go to the inter-bank borrowing market, specifically the call money market.
  • The plan is to use CBDCs as tokens for call money settlement. As on date, CBDC-W is being used as a pilot in settling trade in the government securities market.
  • RBI is also showcasing various digitial initiatives in the financial sectorfor the G20 Summit.
  • These include Public Tech Platform (PTP) for Frictionless Credit, CBDC, UPI One World, RuPay On-The-Go, and Bharat Bill Payment System.
    • Public Tech Platform, visitors can experience an interactive demonstration of the entire process i.e., from onboarding to sanction and disbursement of the KCC and dairy loans in an entirely digital manner in a few minutes, revolutionising rural credit. this platform can be used for distribution of small ticket loans like MSME, personal loans etc.
    • UPI One World aims to facilitate the onboarding of visitors to the UPI system, even if they don’t possess a bank account in India. Meanwhile, RuPay On-The-Go empowers customers to conduct contactless payment transactions using everyday accessories such as watches, rings, or keychains, showcasing the versatility of domestic card scheme products on par with their global counterparts.
    • BBPS (Bharat Bill Payment System) cross-border bill payment will highlight the adaptability of the BBPS platform to integrate with fintechs and conventional financial players to facilitate domestic as well as cross-border payment transactions.

Call money rate 

  • It is the rate at which short term funds are borrowed and lent in the money market.
    • The duration of the call money loan is 1 day.
    • Banks resort to these types of loans to fill the asset liability mismatch, comply with the statutory CRR and SLR requirements and to meet the sudden demand of funds.
    • RBI, banks, primary dealers etc are the participants of the call money market.
    • Demand and supply of liquidity affect the call money rate. A tight liquidity condition leads to a rise in call money rate and vice versa
economy RBI to allow CBDC in call money market