The Reserve Bank of India’s Cautionary Approach to CBDC Rollout
The Reserve Bank of India (RBI) is taking a cautious approach to the nationwide rollout of its Central Bank Digital Currency (CBDC), the e-rupee. Deputy Governor T. Rabi Sankar emphasized the importance of prioritizing financial stability and thoroughly understanding the potential impacts before scaling up the implementation.
Evaluating Long-Term Impact
The e-rupee pilot, which was launched in December 2022, has shown steady progress with over 5 million users and around 1 million retail transactions by mid-2024. Despite these numbers, Sankar stressed the need to evaluate the long-term impact before expanding further.
“Once we have clarity on the outcomes and potential effects, we will take the next steps.”
The Reserve Bank’s cautious approach reflects concerns about how CBDCs could disrupt traditional banking systems. Deputy Governor Michael Debabrata Patra has highlighted the risks associated with CBDCs attracting depositors during financial instability, potentially leading to mass withdrawals and impacting banks.
To address these challenges, the central bank has limited the CBDC rollout to controlled experiments. Local banks involved in the pilot, such as ICICI Bank and State Bank of India, are offering incentives like salary disbursements via e-rupee to drive adoption.
Despite some reservations, regulators in India have expressed a preference for a nationwide CBDC over private digital currencies like Bitcoin.
Evolving Features of the e-Rupee
India is also working on enhancing the e-rupee’s functionality, including developing offline transfer capabilities to improve accessibility. Governor Shaktikanta Das noted that adoption levels are still below those of the Unified Payments Interface (UPI), India’s leading digital payments platform.
The wholesale e-rupee program has focused on interbank transactions and government securities trading, with nine major financial institutions participating in trials to refine the currency’s operational design and identify key use cases.
India’s approach to CBDC development aligns with global trends. According to the Atlantic Council, over 130 countries are actively exploring digital currencies, with nations like China and Nigeria making significant progress in their CBDC initiatives.
As India monitors international developments, the central bank remains committed to ensuring that the e-rupee strengthens the financial system without compromising stability.
