The RBI is likely to launch the pilot of central bank digital currency (CBDC) for transactions for interbank borrowing or call money market.
What is Money Market?
- Money market basically refers to a section of the financial market where financial instruments with high liquidity and short-term maturities are traded.
- It includes buying and selling of securities of short-term maturities, of one year or less, such as treasury bills and commercial papers.
- It is used by many participants, including companies, to raise funds.
- Money market is considered a safe place to invest due to the high liquidity of securities.
What is Call Money?
- Call money is also referred to as the money at call.
- It is a short-term loan which is due to be paid immediately in full as and when demanded by the lender.
- Not similar to a term loan, call money loan does not have a defined schedule of payment and maturity.
- Furthermore, the lender of the call money need not provide prior notice to the borrower about the repayment.
About Interbank Call Money Market:
- It is a short-term money market which allows for large financial institutions to borrow and lend money at interbank rates, the rate of interest that banks charge when they borrow funds from each other.
- The loans in the call money market are very short, usually lasting no longer than a week.
- These loans are often used to help banks meet reserve requirements.
- It is not exclusively used by banks. Interbank call money market customers can include other financial institutions, mutual funds, large corporations, and insurance companies.
Q1) What is a central bank digital currency (CBDC)?
CBDCs are a form of digital currency issued by a country's central bank. Examples of central banks include the Reserve Bank of India (RBI), the US Federal Reserve System, the Bank of Japan. CBDCs are similar to stablecoins, except that their value is fixed by the central bank and equivalent to the country's fiat currency.