Central Bank Digital Currency
A Central Bank Digital Currency (CBDC) is a digital form of sovereign currency issued and backed by the central bank — in India's case, the Reserve Bank of India — representing a direct liability of the RBI, with India piloting both wholesale (e-Rupee-W) and retail (e-Rupee-R) variants of the digital rupee.
The RBI introduced the concept of India's CBDC, termed the e-Rupee (e₹), through a concept note in October 2022 and launched pilot programmes for both variants in late 2022. The digital rupee is distinct from bank deposits (which are liabilities of commercial banks) and from private cryptocurrencies (which are not sovereign legal tender). The e₹ is a direct claim on the RBI, analogous to a physical currency note but in digital form.
The wholesale e₹ (e₹-W) pilot was launched on 1 November 2022, with nine banks participating initially — SBI, Bank of Baroda, Union Bank, HDFC Bank, ICICI Bank, Kotak Mahindra Bank, YES Bank, IDFC First Bank, and HSBC. The wholesale e₹ is designed for interbank settlement, particularly in the government securities market. Transactions in government securities that previously settled on a T+1 basis through RTGS required banks to maintain cash balances; the e₹-W enables atomic settlement — simultaneous exchange of securities and payment — reducing settlement risk and liquidity requirements.
The retail e₹ (e₹-R) pilot began on 1 December 2022 in four cities — Mumbai, New Delhi, Bengaluru, and Bhubaneswar — with the same initial set of banks. The retail e₹ uses a token-based architecture, where tokens stored in a digital wallet represent denominations of currency. Transfers are person-to-person or person-to-merchant, with no intermediation required once tokens are issued by the bank. Importantly, retail e₹ in its basic form is non-interest-bearing (unlike bank deposits), which addresses concerns about financial disintermediation.
RBI's stated motivations for CBDC include reducing the cost of currency management, enabling offline payments in areas with poor connectivity (using near-field communication), providing a programmable payment rail for targeted subsidy transfers, and reducing reliance on private digital payment intermediaries. Cross-border payment efficiency is another medium-term goal, with RBI participating in multi-CBDC trials with other central banks.
By 2024, the retail pilot had expanded to more cities and merchants, with transaction volumes in the tens of thousands per day. Adoption remained modest compared to UPI, raising questions about the e₹-R's marginal utility in a market where UPI already provides instant, cost-free digital payments.