The Reserve Bank of India (RBI) will launch a pilot on deposit tokenisation on October 8, a bank official said.

The central bank will use the wholesale leg of its central bank digital currency (CBDC) as the underlying layer for the exercise, news agency Reuters quoted RBI chief general manager Suvendu Pati as saying.

Digital tokenisation is known to make transactions faster, cheaper and safer.

What is deposit tokenisation?

Tokenisation, in a financial context, refers to representing a real-world financial asset in digital form (a “token”) on a secure ledger (often blockchain or distributed ledger technology).

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 idea is that these tokens faithfully represent underlying bank deposits (i.e., 1 token = 1 unit of deposit), maintaining parity and redeemability.

The Economic Times had reported earlier that the RBI has been evaluating tokenising assets such as government securities and customer deposits as part of its broader digital currency initiatives.

Why use CBDC wholesale as the underlying layer?

The pilot will be built on the wholesale leg of India’s CBDC (often referred to as e₹-W).

The wholesale CBDC is designed primarily for interbank or institutional settlement (for example, settlement in government securities markets).

Using that as the underlying layer ensures that the tokenised deposits are anchored to a central counterparty (the RBI) and benefits from the integrity and finality of central bank money.

This approach also provides a controlled environment for experimentation before considering broader retail participation.

India’s CBDC pilots to date

India launched a wholesale CBDC pilot on 1 November 2022 to facilitate settlement of government securities market transactions.

A retail CBDC pilot (e₹-R) was rolled out on 1 December 2022, targeting person-to-merchant (P2M) and person-to-person (P2P) transactions in select cities.

As of March 2024, retail CBDC usage has seen substantial growth -- outstanding retail CBDC increased from ~₹6 crore to ₹234 crore (a roughly 39-fold increase) in a year. By contrast, wholesale CBDC usage dropped.