RBI's Digital Rupee: What's the Status and Where is it Headed? Notably, in its annual report, RBI hinted that CBDC was gradually gaining traction in the retail segment

Proposed in 2017 and launched in 2022, the Reserve Bank of India's digital rupee, or Central Bank Digital Currency is a digital substitute for the apex body-issued physical notes and coins.

RBI launched the digital rupee or e₹ pilot for the wholesale segment on November 1, 2022, and for the retail segment on December 2022. Nine banks including SBI, HDFC, ICICI, Yes Bank, Kotak Mahindra Bank, and HSBC were identified to be participating in the first pilot phase. Reportedly, the RBI created INR 1.71 crore of e-Rupee for its retail pilot phase.

CBDC's features include RBI regulation (unlike cryptocurrency), real-time payments, secure transactions, and auto auto-load option. A few benefits of CBDC include a faster mode of payment, cheaper global transfers, 24/7 Availability, financial inclusion, reduced risk of theft and loss, and no printing cost, while its drawbacks include digital access, privacy concerns, implementation costs, technology dependence and literacy, and user adaptation.

With this, India joined the likes of 134 countries exploring CBDC. The Bahamas, Nigeria, Dominica, Montserrat, Antigua and Barbuda, Saint Lucia, St. Kitts and Nevis, St. Vincent and the Grenadines have already launched their digital currency.

After almost one and a half years, let's take a look at how the offering is performing so far.

The journey so far

According to the RBI, "a CBDC is a legal tender issued by a central bank in a digital form. It is the same as a fiat currency and is exchangeable one-to-one with the fiat currency. Only its form is different."

Back in late 2022, Reuters reported of bankers sharing that financial stakeholders had neither reaped nor seen any benefits of participating in the pilot.

CBDC, in terms of mass adoption, faces major competition from Unified Payments Interface (UPI). And it seems like the RBI and the participating banks are encouraging and offering incentives to push for its aim of carrying out INR one million CBDC transactions per day by the end 2023.

Back in October, Reuters reported that Indian banks were looking to offer incentives for conducting transactions using CBDC to boost volumes. Despite linkage with UPI, the transactions averaged only 25,000 a day by the end of October.

In December, RBI crossed a speculated one time milestone of one million transactions in a day on Dec. 27, 2023 with efforts from the participating retail banks and its employees. These lenders disbursed amounts related to employee benefit schemes directly to employees' CBDC wallets, instead of their salary accounts, reported a source familiar to the development.

During a press conference in April, Deputy Governor T Rabi Sankar shared that there were 4.6 million consumers onboarded and 400,000 merchants. During the month, RBI announced its proposal to allow non-bank payment system operators to offer CBDC wallets.

"This is expected to enhance access and expand choices available to users apart from testing the resiliency of the CBDC platform to handle multi-channel transactions. Necessary changes will be made to the system to facilitate this," the notice stated.

In May, RBI Governor Shaktikanta Das hinted at the pilot program for the wholesale segment of CBDC in commercial papers (CPs) and certificates of deposits. Das said the daily retail transaction volume of CBDC through interoperability with the UPI has reached one million a day but retail users continue to show a strong preference for the UPI.

Notably, in its annual report, RBI hinted that CBDC was gradually gaining traction in the retail segment.

For FY25, the focus of RBI will be on expanding the scope of CBDC pilots to cover new use cases. Notably, these would include offline functionality, programmability, cross-border transactions, and tokenization of assets. Apart from these, the focus would also lie on exploring the CBDC pilots for cross-border payments both on a bilateral and multilateral basis to overcome key challenges including TAT, efficiency, and transparency.