It’s been over two years for the reason that Reserve Bank of India (RBI) launched India’s blockchain-based digital rupee. However even after two years of trials, India’s retail central bank digital currency (CBDC) struggles to seek out robust adoption within the nation’s burgeoning digital fee panorama.
That is primarily as a result of RBI has been concurrently pushing to popularize India’s flagship Unified Payments Interface (UPI), a worldwide success story and an instance of efficient Digital Public Infrastructure (DPI).
“In India, the digital rupee pilot has but to realize mainstream adoption amongst India’s huge inhabitants, particularly within the presence of the broadly adopted Unified Funds Interface (UPI). As of Could 2024, the e-rupee in circulation stood at 3.23 billion rupees, up from 1 billion rupees in December 2023. Nevertheless, this stays a small fraction of the 35.4 trillion rupees in banknotes presently in circulation,” acknowledged an International Monetary Fund (IMF) report.
Whereas the RBI believes CBDC is the future of money, it is usually targeted on leveraging the advantages of latest applied sciences.
The central financial institution had efficiently reached one million daily transactions for its retail CBDC pilot by December 2023, after banks have been advised to supply incentives to customers and a portion of financial institution workers’ salaries have been paid utilizing the e-rupee. Nevertheless, every day transactions for retail CBDC fell to about 100,000, knowledge gathered by a Reuters report in June showed, quoting sources it didn’t establish.
“The recognition of instantaneous fee techniques like UPI poses a problem to the retail adoption of the e-rupee,” mentioned Rohan Sharan, founder and chief government of Timechain Labs, an on-chain utility improvement agency using BSV blockchain expertise.
“The benefit, pace, and zero-cost nature of UPI transactions imply the e-rupee should supply distinctive benefits corresponding to offline funds, programmable options, or enhanced safety to draw customers. With out clear incentives, CBDC’s retail adoption may proceed to battle. The RBI may have to create particular use instances the place CBDCs present tangible advantages over UPI,” Sharan advised CoinGeek.
RBI began its first digital rupee pilot in the wholesale segment on November 1, 2022, to settle secondary market transactions in authorities securities. It began the pilot with 9 banks—State Financial institution of India (NASDAQ: SBKFF), Financial institution of Baroda, Union Financial institution of India, HDFC Financial institution (NASDAQ: HDB), ICICI Financial institution (NASDAQ: IBN), Kotak Mahindra Financial institution, Sure Financial institution, IDFC First Financial institution, and HSBC (NASDAQ: HSBC).
The retail digital rupee pilot began on December 1, 2022, and customers have been capable of transact by way of a digital pockets provided by the taking part banks and saved on cell phones or units.
In March 2024, former RBI Governor Shaktikanta Das said that India had about 4.3 million retail CBDC customers, whereas an extra 400,000 retailers have been additionally utilizing the e-rupee.
“Whereas the variety of [CBDC] transactions have reached a excessive of 1 million a day, we nonetheless see choice for UPI among the many retail customers. We, in fact, hope that it will change going ahead,” Das said in Could.
“We’ve got leveraged the present service provider infrastructure on the UPI to facilitate CBDC transactions. We’ve got additionally enabled interoperability of CBDC with UPI,” Das added.
Not simply India
To be truthful, adoption of CBDCs stays sluggish in most areas, not solely in India, regardless of a number of nations launching or piloting them.
The Bahamas, Jamaica, and Nigeria have launched nationwide CBDCs, whereas China, the Jap Caribbean Forex Union (ECCU), and India have initiated large-scale pilots, in keeping with the IMF report.
Within the Bahamas, the adoption of the Sand Dollar is hindered by low service provider participation and restricted integration with the banking system. The ECCU’s DCash confronted comparable points, together with poor person schooling and an absence of service provider community improvement.
Jamaica’s JAM-DEX struggled with low adoption on account of inadequate public schooling and service provider onboarding challenges. Nigeria’s eNaira adoption has been sluggish, with 98.5% of wallets remaining unused a 12 months after launch, partly on account of restricted entry and restricted home utilization.
China’s e-CNY, the biggest CBDC pilot, has seen widespread use in numerous sectors, with 120 million wallets and 16.5 billion yuan in circulation by June 2023. Nevertheless, it nonetheless represents solely a small fraction of China’s whole cash provide and lags behind non-public fee apps like AliPay and WeChat Pay, the IMF report acknowledged.
UPI sees 10-fold progress whereas e-rupee struggles
Whereas India struggles to boost public assist for its e-rupee, UPI has seen a tenfold increase in quantity over the previous 4 years, from 12.5 billion transactions in 2019-2020 to 131 billion transactions in 2023-2024, or 80% of all digital fee volumes.
In October 2024, UPI processed 16.58 billion transactions, marking a forty five% improve in comparison with October 2023. Launched in 2016, UPI presents instantaneous cash transfers and is a single cell utility for accessing completely different financial institution accounts.
“With its unmatched comfort and familiarity, UPI might overshadow CBDC in retail adoption. Many customers might resist transitioning to a brand new fee methodology,” identified Amit Kumar Gupta, a authorized practitioner on the Supreme Courtroom of India.
“Public consciousness initiatives may spotlight CBDC’s distinctive advantages, corresponding to offline capabilities. Distinct benefits over UPI may assist CBDC carve a distinct segment,” Gupta identified.
In response to Sharat Chandra, founding father of EmpowerEdge Ventures and a startup enabler, the RBI’s push for fast fee techniques like UPI might certainly hinder the retail adoption of CBDCs.
“As customers develop into accustomed to seamless transactions by way of UPI, they might be much less inclined to undertake a brand new digital foreign money except it presents distinct benefits. Present knowledge signifies a decline in CBDC retail utilization, suggesting that with out compelling incentives or distinctive options, widespread acceptance might stay elusive,” Chandra advised CoinGeek.
Overlapping features
The RBI’s deal with real-time fee techniques like UPI and the e-rupee may create person confusion and a conundrum. UPI’s present infrastructure and person base makes it a strong competitor for CBDCs, resulting in potential overlapping features between UPI and CBDCs, notably for small, on a regular basis transactions, identified Raj Kapoor, founding father of India Blockchain Alliance (IBA).
“Given UPI’s comfort, no-fee mannequin, and broad acceptance amongst retailers, it could cut back the fast want for CBDCs in retail funds. Customers might not see sufficient incremental advantages from CBDCs, as UPI already presents real-time, near-instantaneous transfers,” Kapoor advised CoinGeek.
One other difficulty with CBDC adoption is that whereas CBDCs supply distinct options like programmable cash and safe digital property, they require intensive public consciousness and onboarding.
“UPI’s fast and frictionless utilization may delay CBDC adoption, as it could take appreciable effort to persuade customers to transition to a wholly new fee system. Additional, integrating CBDCs into India’s regulatory framework may face hurdles and should not essentially be seamless. Whereas UPI’s authorities backing supplies a seamless person expertise, CBDCs would require extra authorized concerns and infrastructure to make sure clean integration throughout numerous platforms, which may sluggish adoption,” Kapoor added.
RBI’s efforts
India’s central financial institution announced plans to make its e-rupee accessible to extra retail customers by together with non-bank fee system operators to supply CBDC wallets. The transfer is anticipated to check how resilient India’s CBDC platform is in dealing with multi-channel transactions.
Amongst different initiatives, the RBI said it’s exploring the potential for utilizing the e-rupee in commercial papers (CPs) and certificates of deposits (CDs) on a trial foundation. CPs are short-term debt devices issued by corporations to boost funds, whereas CDs are fixed-income funding devices that may be taken out by traders from monetary establishments and business banks.
The RBI additionally said it’s trying to allow extra functionalities of programmability and offline capability in CBDC retail funds. Whereas programmability is anticipated to facilitate transactions for particular and focused functions, offline performance will enable transactions in areas with poor or restricted web connectivity.
The central financial institution additionally started discussions with the Hong Kong Financial Authority (HKMA), america Federal Reserve, and the worldwide fee platform SWIFT to discover cross-border payments for CBDCs. The RBI mentioned it’s trying to introduce the digital rupee within the call money market and plans to make use of CBDCs as tokens for name cash settlement.
Miles to go
“The interoperability of CBDC with UPI can be a step in the suitable route; nevertheless, it nonetheless faces obstacles corresponding to restricted service provider acceptance and lack of widespread consciousness. Moreover, CBDC wallets aren’t but obtainable by way of non-bank fee operators like PhonePe or Google Pay, which limits accessibility,” Kapoor identified.
The shortage of compelling incentives to modify to CBDC over present fee techniques like UPI or financial institution transfers additionally hampers adoption. Whereas the federal government is pushing for a broader rollout and has even thought of integrating CBDC into offline fee options, it nonetheless faces competitors from extra user-friendly, quick, and broadly accepted techniques.
“2025 would want to give you extra aggressive consciousness campaigns, wider distribution strategies, and stronger incentives shall be essential to compete with UPI’s entrenched place out there. Nevertheless, with out vital enhancements within the CBDC ecosystem, its retail adoption may proceed to battle,” Kapoor added.
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