MC EXCLUSIVE India may go slow on full digital rupee rollout, track global cues

While the pilots are gradually expanding to more banks and locations, testing features like fintech integration and offline payments, the RBI is yet to launch its digital currency for general use.

• India to observe global trends before expanding CBDC rollout.
• RBI tests digital rupee with select banks for retail and wholesale use
• Privacy and cross-border payments are key considerations in CBDC strategy

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India is likely to adopt a wait-and-watch approach in deploying the central bank digital currency (CBDC) beyond the ongoing pilots, taking cues from other major economies, government sources said.

India is monitoring developments the United Kingdom and parts of Europe, among others, on their CBDC frameworks, indicating that the country could either wait for other major economies to launch first or align its rollout with them.

“Domestic rollout through a wallet is relatively straightforward but the real value comes when CBDCs can be used for cross-border transactions. That requires coordination with other countries,” one of the sources cited above said.

The Reserve Bank of India (RBI) is running pilot programmes for both the retail and wholesale versions of the digital rupee, testing various use cases and operational features.

Timing is a key consideration. According to sources, India is keen to align its CBDC strategy with global developments, particularly in the area of cross-border payments.

While the technology backbone for CBDC has been developed and multiple pilot programmes are ongoing, there is no readiness yet to deploy the digital rupee “in a big way”, sources said.

“CBDC is fundamentally different from crypto, it is a rupee-to-rupee transaction backed fully by fiat currency. Because of that, it has to be handled with far greater care,” a second source said, adding the central bank has been cautious in assessing the outcomes of the pilots conducted so far.

Another matter under deliberation is privacy. The first source cited above said efforts are underway to ensure that the digital rupee offers a degree of anonymity comparable to physical cash, at least for low-value transactions.

Discussions on this aspect are on between the RBI and the government.

The RBI remains open to gradually expanding the network of banks participating in the CBDC pilots, a third source said.

"We are observing how the CBDCs of other jurisdictions are launched. We are open to expanding the network of banks, and it will happen but we have to move carefully. CBDC is backed by the rupee, it's useful for transactions,” the source said.

Aruna Pannala, Partner at Deloitte India, said cross-border payments can benefit significantly from CBDCs. With over 110 countries exploring or adopting them, they can provide a secure, well-regulated, and efficient platform for remittances, with built-in safeguards against money laundering and terrorist financing.

India launched digital rupee with the wholesale pilot starting on November 1, 2022 and the retail a month later.

The RBI has been running these pilots with banks, including SBI, ICICI, HDFC, Yes Bank, Kotak, and HSBC, across cities such as Mumbai, New Delhi, and Bengaluru.

While the pilots are gradually expanding to more banks and locations, testing features like fintech integration and offline payments, the RBI is yet to launch its digital currency for general use.