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India’s Reserve Bank (RBI) is proceeding cautiously with the introduction of its Central Bank Digital Currency (CBDC), known as the e-rupee. While the potential of CBDCs to revolutionize the financial system is acknowledged, the central bank has emphasized a measured approach to ensure the technology’s stability and impact are fully understood.
RBI’s Measured Approach to CBDC Expansion
In a statement reported by Bloomberg, RBI Deputy Governor T. Rabi Sankar stressed the importance of patience in deploying the e-rupee. “We are in no hurry to roll it out immediately. Once we have some visibility of what the outcome or impact will be, we’ll roll it out,” Sankar stated at a recent conference in Cebu, Philippines.
The e-rupee, launched in December 2022, remains in its pilot phase, with adoption progressing at a gradual pace. By mid-2024, India recorded 1 million retail transactions, reflecting a cautious but growing interest in the digital currency.
To promote the adoption of the e-rupee, local banks have introduced incentives such as using CBDCs for salary disbursements. Despite these efforts, the RBI’s deliberate stance underscores its focus on minimizing risks, particularly regarding financial stability.
Challenges in CBDC Integration
Deputy Governor Michael Debabrata Patra highlighted concerns about the potential for CBDCs to disrupt the banking ecosystem. During financial crises, CBDCs might be perceived as “safe havens”, triggering significant withdrawals from traditional bank deposits and increasing the likelihood of bank runs.
This scenario poses a significant challenge to India’s banking system, which relies heavily on deposit-based liquidity.
e-Rupee Growth and Future Enhancements
Despite the challenges, India’s e-rupee pilot has made notable progress:
- By mid-2024, over 5 million users had adopted the digital currency.
- The RBI is working on adding offline transfer functionality to make the e-rupee more accessible in areas with limited internet connectivity.
- Governor Shaktikanta Das has highlighted the rise in retail transactions while acknowledging the need for further development to rival the success of India’s Unified Payments Interface (UPI).
Additionally, India’s wholesale CBDC pilot, involving major banks such as ICICI Bank, HDFC Bank, and State Bank of India, is focused on interbank transactions and government securities trading. These initiatives aim to refine the e-rupee’s capabilities and integrate it seamlessly into the financial system.
India in the Global CBDC Landscape
India’s cautious rollout reflects a global trend, with over 130 countries, representing nearly 98% of global GDP, exploring digital currencies, according to the Atlantic Council. Nations like China, Jamaica, and Nigeria are leading the charge, having made significant advancements in their CBDC projects.
India continues to monitor these developments closely, adopting a strategy tailored to its unique financial ecosystem while contributing to the broader evolution of CBDCs globally.
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