India's eRupee CBDC, which is currently in its advanced testing period, is facing a decline in usage. Citing sources familiar with the matter, a Reuters report has claimed that CBDC transactions which had reached the one million transaction per day mark in December 2023, have so far declined to around 100,000 transactions per day . However, neither the finance ministry nor the Reserve Bank of India (RBI) have accepted or denied the Reuters report.
What is leading to the fall of the eRupia?
The eRupee CBDC is being developed and tested by the RBI. In 2023, when the CBDC reached its advanced testing phase, banks assisting the RBI in testing eRupee decided to get creative in promoting its use among their individual and retail customers.
In January 2024, several banks operating in India began disbursing funds related to employee benefit plans, directly to employees' CBDC wallets, instead of their salary accounts. This move was aimed at increasing the availability and usage of the eRupee. Banks that practiced it included HDFC, Kotak Mahindra Bank, Axis Bank, Canara Bank and IDFC First Bank.
According to the Reuters report, these banks have withdrawn this initiative, leading to a drop in the use of the eRupia. “The lack of organic demand to use the e-rupee is evident,” the report said citing sources familiar with the matter.
What is the current status of the eRupia?
Last year, the RBI had directed banks to push the use of eRupia to test the flexibility of this system. At the time, Sharat Chandra, the co-founder of the India Blockchain Forum had said that “compensating employees who use the CBDC is a good step”. In May this year, however, reports of the drop in wholesale circulation of the eRupia hit the headlines.
While banks no longer distribute salaries to employees in the form of eRupee, the RBI has hinted at its future plans to increase the use of CBDC among the masses. For example, the Apex bank recently said it would start circulating the digital rupee through non-banking payment system operators such as Google Pay and PhonePe. Although this plan was discussed in May, the CBDC option is yet to be implemented in these UPI payment apps.
The RBI is also looking at adding an offline payments feature to make it usable for those in areas with poor internet connectivity.
Efforts are underway to make CBDC compatible with existing UPI QR codes, providing people with a familiar method of using eRupee for daily transactions. Currently, CBDC has yet to see widespread use in India, and it remains to be seen when the future of this technology will become apparent.
A CBDC or Central Bank Digital Currency is a virtual representation of a fiat currency, supported by blockchain instead of traditional servers. A CBDC has several elements similar to cryptocurrencies, such as fast transactional speed, enhanced privacy, and maintenance of permanent transactional records. Unlike cryptocurrencies, however, CBDCs are issued and regulated by central banks.
India launched its CBDC with the testing phase starting in November 2022. Since then, the eRupee has been continuously tested in retail environments.
