What to Know:
- RBI to launch a deposit tokenization pilot using the wholesale CBDC (e₹-W).
- Tokenized deposits aim to make transactions faster, cheaper, and safer.
- Success could reshape how banks handle money and inspire global models.
India is making a big move toward the future of banking. The Reserve Bank of India (RBI) said that it will soon start a pilot program for deposit tokenization. This means that regular bank deposits will be turned into digital tokens that are stored on a blockchain, with the central bank’s digital currency as the base layer.
What Is Deposit Tokenization?
Deposit tokenization is the process of converting traditional bank deposits into digital tokens that reflect the same value. Instead of just having a deposit in an account, that money is mirrored by digital tokens. These tokens are stored and managed using blockchain technology. Because the deposit is so deeply tied to the token, every token step can be tracked, verified, and settled more efficiently. This holds the promise of faster, cheaper, more secure transactions.
In this pilot, the wholesale segment of India’s CBDC will be used as the underlying settlement infrastructure. This means the tokenized deposits will rest on top of the CBDC system meant for interbank transfers and large-scale financial institutions.
Why India Is Doing This Now
The RBI sees several possible benefits to deposit tokenization. At an event in Mumbai, RBI’s Chief General Manager Suvendu Pati said regulatory oversight is crucial. He stressed that tokenization must maintain integrity and enforceability meaning the legal and financial framework should support the digital tokens exactly as they do regular deposits. Pati also noted that any risks in tokenizing assets are manageable, as long as proper rules (or “guardrails”) are in place.
How the Pilot Will Work
The work will begin with select banks, which will partner with RBI to test tokenized deposits. The underlying CBDC system used is already active in India: the wholesale version of the e-rupee (sometimes called e₹-W). This system is already being used to settle large institutional and government securities transactions.
Beyond deposits, the RBI is also exploring tokenization for other financial instruments like money market instruments. That means the same tokenization concept could one day apply to not just deposits, but short-term loans, bonds, and more.
In practice, a deposit with a bank would be converted into a token by a trusted custodian. That token can then move across systems, be traded, or be settled on blockchain networks. The original deposit remains backing that token.
What to Watch Out For
While promising, there are several challenges. To gain users’ trust, the system needs to treat digital tokens the same way it does regular deposits. To keep real money safe when it moves through digital systems, there must be strong security, fraud protection, and reliable backups. For the new framework to really take off, banks and other big financial institutions need to use it and trust it. On the technical side, tokenization needs to work well with the banking infrastructure that is already in place, which is often old and needs to be able to handle a lot of transactions at once. Tokenization could really change how money moves between and within banks in India if these problems are handled well.
What This Means for India
If this pilot succeeds, India could become one of the first major economies to put deposit tokenization into live use. That would modernise India’s banking and financial systems and Provide a model for other countries to follow. It would also help integrate traditional banking with digital finance more seamlessly and open doors for new financial instruments, services, and innovations.
India is not new to CBDCs. The RBI launched a wholesale CBDC pilot in 2022 and a retail pilot in December that year. The retail version allows users and merchants to transact in digital rupees. Still, deposit tokenization is a different step it tackles how banks handle deposits, not just payments.
Looking Ahead
The RBI’s deposit tokenization pilot is set to begin soon, with select banks and institutions partnering to test the system over a defined period. Success will depend on how well technical, legal, and institutional issues are handled. If it works well, India might show the world a path to combining legacy finance with new digital systems.
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