Retail CBDC adoption: Long winding road to 1 million transactions

Central Bank Digital Currency (CBDC) is a digital form of currency notes issued by a central bank. RBI broadly defines e-Re as the legal tender issued by a central bank in digital form

The testing of the retail segment of the central bank digital currency (CBDC), which started in December last year, is progressing at a slow pace, even though the Reserve Bank of India (RBI) has set an ambitious target of 1 million transactions by the end of this year.

According to sources familiar with the retail segment of CBDC, 3.5 million merchants and 1 million users or customers have been selected for the pilot; daily transactions are only in the range of 10,000 to 12,000.

“Awareness is still lacking. We need to make people aware that this is different from the Unified Payments Interface (UPI),” said a source.

Thirteen banks are participating in the retail pilot.

“While the number of merchants and users has increased, they are not conducting transactions. Usage needs to increase, and for that, awareness is essential,” the source added.

CBDC is a digital form of currency notes issued by a central bank. The RBI broadly defines eRe as the legal tender issued by a central bank in digital form. It is similar to sovereign paper currency but takes a different form, is exchangeable at par with the existing currency, and is accepted as a medium of payment, a legal tender, and a safe store of value.

One of the key initiatives by the RBI to popularise CBDC was allowing quick response interoperability between CBDC and UPI. 

Many banks have introduced such features for their customers. However, not many customers are conducting transactions in CBDC, mainly due to a lack of awareness.

The pilot, which commenced on December 1, 2022, initially covered four cities: Mumbai, New Delhi, Bengaluru, and Bhubaneswar, and was later extended to Ahmedabad, Gangtok, Guwahati, Hyderabad, Indore, Kochi, Lucknow, Patna, and Shimla.

“The digital form of currency brings along multiple possibilities that can bring innovation and efficiency, such as features of offline, programmability, and cross-border transactions in current systems, and may create altogether new frameworks for the financial system to operate in. I believe, as in the case of UPI, we will witness a lot of innovation in this tokenised form of money in the days to come,” RBI Deputy Governor T Rabi Sankar said, adding that RBI has been able to test various technical architectures, design choices, and use cases during the pilot.

Sources said the inclusion of online aggregators and shopping applications (apps) in the CBDC ecosystem could help increase the popularity of the digital rupee. 

There are plans to include such online apps, but it will take time, possibly another six months.

“The infrastructure needs to be in place in those apps,” the person said.

One of the key objectives of the RBI for promoting eRe is to minimise transaction costs on cross-border payments.

RBI Governor Shaktikanta Das had raised the issue of high costs and slow speed associated with cross-border payments and said the CBDC’s instant-settlement feature could play an important role in addressing those issues.

“With their instant-settlement feature, I believe CBDCs can play an important role in making cross-border payments cheaper, faster, and more secure," Das said.