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The Central Bank Digital Currency (CBDC) pilot has exceeded 150 million transactions with a value surpassing ₹34,000 crore.

What are Central Bank Digital Currencies (CBDCs)?

A CBDC is the digital form of a country's official fiat currency. 

• Unlike private cryptocurrencies like Bitcoin, a CBDC is issued and backed by the central bank, giving it the status of legal tender, ensuring stability.
• It is a direct liability of the central bank, just like physical cash. 

Types of CBDCs

Retail CBDC (e₹-R): For public use in everyday transactions by individuals and businesses. It can be:

• Token-based: Works like physical cash, offering near-anonymity through digital tokens secured by private/public keys.
• Account-based: Functions like a bank account directly with the central bank, requiring digital identification.

Wholesale CBDC (e₹-W): For use by financial institutions only, to settle large interbank transfers and securities transactions efficiently.

Why is the World Moving Towards CBDCs?

Financial Inclusion & Targeted Welfare: CBDCs can be "programmed" for specific uses. 

• For example, the government can issue fertilizer subsidies through Direct Benefit Transfer (DBT) that can only be spent on agricultural inputs, preventing leakage.

Reduced Currency Management Costs: Central banks can cut down on the high costs associated with printing, distributing, and managing physical currency.

Efficient Cross-Border Payments: Platforms like Project mBridge enable direct, instantaneous settlements between countries, bypassing the slow and expensive SWIFT network which relies on multiple intermediary banks.

Enhanced Financial Stability: A CBDC is a direct liability of the sovereign central bank, carrying zero credit or liquidity risk. This is safer than commercial bank deposits, which have a marginal risk of bank failure.

India's Progress: The e-Rupee

Following the recommendation of the Subhash Chandra Garg Committee (2019) to develop an official digital currency, the RBI launched the e-Rupee pilot project in late 2022. 

Current Status 

Transaction Volume: Over 150 million transactions recorded, showcasing high retail frequency.

Monetary Value: The ecosystem now manages a value exceeding ₹34,000 crore, indicating trust among high-value corporate users. (Source: Business Standard)

Growth Drivers 

Interoperability: A major driver has been the UPI-CBDC interoperability, allowing users to scan any standard UPI QR code to pay using their Digital Rupee wallet.

Offline Functionality: The RBI’s push for offline digital payments has enabled the e₹ to be used in areas with poor internet connectivity, mimicking the "anywhere-anytime" nature of physical cash.

How is e-Rupee Different from UPI?

While both are digital, their fundamental nature is different. UPI is a payment interface, whereas the e-Rupee is actual sovereign money.

Challenges and Risks of CBDCs

Bank Disintermediation: If the public moves large sums from commercial bank accounts to safer CBDC wallets, banks could lose a major source of low-cost deposits. 

• This "deposit flight" could reduce their capacity to lend and slow economic growth.

Privacy Concerns: A centralized digital ledger allows the government to track all transactions, raising privacy issues.

• This must be balanced against the fundamental Right to Privacy (K.S. Puttaswamy v Union of India).

Cybersecurity Threats: A centralized national currency ledger is a high-value target for cyberattacks. 

• A breach could cripple the entire economy. In 2025, CERT-In reported over 29.44 lakh cybersecurity incidents.

The Digital Divide: Effective rollout requires universal access to smartphones, internet, and electricity. This remains a challenge in rural and remote areas of India.

Way Forward For India

Imposing holding limits on retail CBDC wallets to prevent large-scale deposit flight from commercial banks.

Enacting legislative safeguards to protect user privacy for low-value transactions, potentially through features like "anonymity vouchers" to mimic the privacy of cash.

Positioning the e-Rupee not as a replacement for UPI, but as a resilient sovereign digital backbone that strengthens the financial ecosystem in the new global digital order.

Learn from Global Case Studies 

Success- Project mBridge (Geopolitical Impact): A multi-CBDC platform connecting China, UAE, Hong Kong, Thailand, and Saudi Arabia. It shows how CBDCs can create parallel trade settlement systems, reducing dependence on the US dollar.

Struggle - Nigeria’s eNaira (Adoption Issues): Despite being an early adopter, the eNaira faced poor public uptake. 

• An IMF report noted that most of the 13 million wallets created remain inactive. The key reasons were low public trust and strong competition from existing mobile payment solutions. 
• The lesson for India is that technology must offer a clear advantage over popular existing systems like UPI to drive adoption.

Conclusion

CBDCs are an inevitable evolution of sovereign currency. For India, the e-Rupee offers a path to greater efficiency and strategic autonomy. However, the RBI must proceed with a calibrated and phased approach. 

Source: BUSINESS-STANDARD