The launch of the e-rupee pilot by the Reserve Bank of India (RBI) in 2022 marked a significant milestone in the realm of digital payments. This central bank digital currency (CBDC) leverages blockchain technology to create an electronic version of the physical rupee, offering a secure and government-backed alternative to private digital currencies. While the wholesale pilot run of the Indian CBDC was generally successful, this article focuses on the retail CBDC, known as the Digital Rupee for Retail (e₹-R).
Fueled by the pandemic lockdowns and the widespread adoption of smartphones, digital payment systems have matured in India. In 2022, the United Payments Interface (UPI) facilitated a staggering 7,404.45 crore transactions, equivalent to 2,347 transactions per second. The total transaction value reached Rs 125.95 lakh crore, a substantial 1.75x increase compared to 2021.The RBI’s introduction of the e-rupee also aims to mitigate the risks associated with digital currencies, exemplified by last year’s FTX collapse. CBDCs offer users the advantages of digital currencies while benefitting from government oversight, enhancing security.Globally, there is a growing interest in CBDCs, with 105 nations exploring their own versions. China, among the largest economies, was an early adopter, launching the digital yuan pilot in April 2020. This sets the stage for India’s e-rupee pilot, aligning with the global trend of CBDC adoption. The e-rupee will play a vital role in enabling high-speed, low-cost cross-border payments in this evolving landscape.E-rupee Pilot: What to AnticipateThe first pilot phase for the retail e-rupee was initiated on December 1, 2022, in four cities: Mumbai, New Delhi, Bengaluru, and Bhubaneswar. Tokens are distributed through prominent banks such as the State Bank of India, ICICI Bank, Yes Bank, and IDFC First Bank.
In the second phase, additional banks including Bank of Baroda, Union Bank of India, Kotak Mahindra Bank, and HDFC Bank will join, expanding the e-rupee’s availability to cities like Ahmedabad, Gangtok, Guwahati, Hyderabad, Indore, Kochi, Lucknow, Patna, and Shimla. Gradually, the CBDC will be introduced to more locations, banks, and users.
The e-rupee will be issued in the same denominations as physical currency, allowing users to make peer-to-peer and merchant payments via digital wallets. Merchant payments can be conveniently made through QR codes, promising increased safety and settlement finality.
Digital Currency for Mass Adoption
To cater to India’s vast population of 1.4 billion, robust technological infrastructure is essential. Scaling a publicly verifiable ledger while ensuring privacy within the Indian legal framework without imposing exorbitant transaction fees for small payments is a major challenge.
Given the substantial government subsidy towards processing UPI transactions at zero charges, careful consideration of leading blockchain patents from global players like IBM, Alibaba, and nChain is necessary to meet India’s specific requirements.
Offline capability is another critical aspect, as over 60 crore Indians lack internet access. To promote financial inclusion among the unbanked, digital wallets must independently verify transactions without relying on a server. Compatibility with widely-used digital payment systems such as Paytm, PhonePe, and GPay is key to the success of the Indian CBDC.
As the e-rupee continues to roll out and reach more locations, we can anticipate increased activity in the digital payments space and greater adoption of blockchain solutions. Developers and financial service organizations will be at the forefront as the Indian CBDC becomes more prevalent.