India is forging ahead with the trials of its central bank digital currency (CBDC) dubbed as the digital rupee (e₹-R) with each passing day. To use the digital rupee, Indians will have to download a designated CBDC app, link their bank accounts to this app, convert their money to the CBDC before being able to use it for day-to-day payments. Despite this seemingly tedious onboarding process, India has no plans to incentivise the testers and the eventual end users of the CBDC.
Speaking at the 17th India Digital Summit earlier this week in New Delhi, a panel of industry insiders said that the use of CBDC as opposed to the existing UPI online payment method will make online payments cheaper, faster, and protected with a layer of anonymity.
The speakers included Ajay Rajan, Head of Transaction Banking and Supply Chain Business, Yes Bank, Dewang Neralla, CXO, NTT DATA Payment Services India, and Manish Gadia, SVP & Head Emerging Tech Platforms, Vayana.
They explained that the government of India has not decided to force or lure people to use the CBDC.
“They (the government) have given you another form factor, which they can manage as per the fiscal policies. The CBDC has all the features of a top notch payment instrument and even in fact better than the payment instruments which are already existing in the economy. The government does not have to compensate anybody,” Rajan said, highlighting that the programmability element of the digital rupee will play a crucial role in digitising the overall trade ecosystem of India.
China has also been working on its e-CNY CBDC trials. In a bid to onboard more people to use its CBDC, the Chinese government had begun promoting the e-CNY as ‘good luck' gifts around its new year celebrations. In fact, last year the country had planned to airdrop $4.5 million (roughly Rs. 37 crore) as CBDCs to the residents of its densely populated Shenzen city to promote its use.
The Nigerian authorities on the other hand, have also been loading up their national eNaira CBDC with special features to entice citizens to ditch the physical currencies. These include allowing citizens, even unbanked ones, to create quick digital wallets by dialling four-digit-codes on their mobiles.
India has no such pro-CBDC tricks in its bag as of now.
Experts, during the discussion highlighted that the use of the CBDC will reduce the pressure that currently surround the Indian banking system. This includes RBI's expenses of printing physical notes and maintaining the resources to do so.
“Currently, the government spends around Rs. 6,000 crore on printing cash notes and around Rs. 12,000 crore in managing the cash-based systems,” Neralla noted.
The digital rupee, once rolled out commercially, would be used for peer-to-peer (P2P) payments as well as peer-to-merchant (P2M) payments. It would make cross-border payments instant and free of charge, that would in-turn largely help nations dependent on remittances.
Like the UPI method, digital rupee users will be able to scan QR codes to facilitate online payments.
For now, the programmability of the digital rupee lies entirely in the hands of the financial regulators. No private or government banks in India are in-line to get a chance to programme the CBDC.
At present, the infrastructure of the digital rupee is also not entirely based on a blockchain network. Its still being issued in a hybrid model where its transfer from the RBI to the banks is based on blockchain — but its bank to consumer wallet transfer is based on the UPI system.
It could take more time for the CBDC infrastructure to shift entirely to the blockchain network.
India's CBDC went into its pilot mode in December last year. CBDC trials in India have been expanded to 50,000 testers. In the last two months, over 770,000 transactions have been facilitated via the digital rupee so far in select cities. Multiple banks as well as select merchants are participating in these trials to ensure that the uses of this CBDC are facilitated seamlessly.
Earlier in February, the mammoth Reliance Retail chain announced that it would be accepting the digital rupee as part of the ongoing trials.
The successful uses of the CBDC will broadly rely on the network conditions prevalent in the regions it is being used in.
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