OPINION | Digital Rupee’s Second Act: Why India’s CBDC Is Back In Conversation

In a world shifting toward tokenised money and programmable finance, India’s second act with the Digital Rupee is more than just a payment innovation.

India’s CBDC may still be in its early innings, but the groundwork being laid in 2024 could determine its future trajectory.

Source : Starline/Freepik

By Aishwary Gupta

India has been at the forefront of digital payments innovation, with UPI revolutionising person-to-person and merchant transactions at scale. But as the world turns its attention to Central Bank Digital Currencies (CBDCs), India’s own initiative — the Digital Rupee — has re-entered the spotlight. While the pilot began in late 2022, it's in 2024 that we’re seeing its second act unfold with greater intent and purpose.

The question is: Why now?

Digital Rupee: Where Things Stand Today

The Reserve Bank of India (RBI) launched the retail CBDC pilot (e₹-R) with the goal of exploring digital currency use among individuals and businesses. As of June 2024:

• Only 19 banks are actively participating in the pilot programme.
  
• The average daily transaction volume has grown to around 100,000–120,000 transactions per day, modest when compared to UPI’s 350 million daily average.
  
• The e₹ is currently accepted by a limited number of merchants and used primarily in closed-loop environments.
  

Still, these numbers don’t tell the full story. A series of strategic shifts in 2024 indicates that India is preparing to move beyond the pilot phase and into scaled use cases.

From Pilot to Purpose: What’s New in 2024?

Several recent developments suggest a new direction for India’s CBDC program:

1. Offline CBDC Payments

One of the biggest hurdles in rural and remote areas is internet connectivity. The RBI is now piloting offline CBDC transactions, enabling feature phones and smart cards to conduct e₹ payments without a live data connection. This is a game-changer for financial inclusion.

2. CBDC for Government Transfers

Select government departments have started experimenting with using CBDC for employee reimbursements and direct benefit transfers (DBTs). Programmable disbursements can ensure that subsidies or benefits are spent for their intended purpose, increasing efficiency and accountability.

3. UPI Interoperability

To avoid creating parallel payment silos, the RBI is working toward CBDC-QR compatibility with UPI, allowing merchants to accept both e₹ and UPI payments using the same interface. This convergence of digital rails could be crucial for merchant adoption.

4. Programmable Payments and Smart Contracts

Some banks are piloting programmable use cases of e₹, where funds can be encoded to be used only for specific purposes, like school fees, groceries, or utility bills. These experiments could redefine how welfare, corporate reimbursements, and supply chain payments are managed.

Why the Renewed Push?

Several global and domestic factors are influencing India’s renewed interest in the Digital Rupee:

• Geopolitical Shifts: Countries around the world are accelerating CBDC development to create alternative cross-border settlement systems, especially in response to the weaponisation of the dollar.
  
• Private Sector Interest: With stablecoins and digital wallets gaining traction globally, the RBI may be looking to offer a regulated alternative that preserves sovereign control over currency issuance.
  
• RBI’s Long-Term Vision: The central bank has been clear — CBDC is not meant to replace physical cash or UPI but to offer a third layer: tokenised central bank money for programmable, sovereign transactions.
  

The Road Ahead

India’s CBDC may still be in its early innings, but the groundwork being laid in 2024 could determine its future trajectory. Unlike UPI, which scaled rapidly due to private sector partnerships and ease of use, CBDC adoption will require careful calibration of privacy, programmability, and interoperability.

However, if done right, the Digital Rupee could:

• Expand financial access in underserved areas
  
• Enable faster, lower-cost public and private payments
  
• Serve as a programmable alternative to cash and digital wallets
  
• Offer India an edge in global CBDC interoperability and trade
  

In a world shifting toward tokenised money and programmable finance, India’s second act with the Digital Rupee is more than just a payment innovation — it’s a chance to lead the next era of digital public infrastructure.

(The author is the Global Head of Payments & Real World Assets, Polygon Labs)

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