It seemed that perhaps the digital rupee was gaining traction when the RBI said in January that transactions had reached 1 million a day in December 2023. However, after taking a closer look at those numbers, it becomes clear that the 1 million milestone was only reached in a single day in December (Dec. 27), rather than being the average of daily transactions that month. Further since then, transactions have settled at around 100,000 to 200,000 a day.
When considering the viability of the digital rupee, it is important to remember the context in which the project was developed. Several years, the RBI was concerned about threats to its sovereignty posed by cryptocurrency. It observed how China launched the digital renminbi while simultaneously cracking down on crypto. It reasoned that a well-designed CBDC could increase financial inclusion while reasserting the monetary sovereignty of the central bank.
However, it is unclear if India’s financial authorities sufficiently considered the question of demand. Existing digital payments infrastructure in the subcontinent is comprehensive. The state-run Unified Payments Interface (UPI) system is extraordinarily successful. UPI transactions rose 3.6% month-on-month to about 15 billion in August and 41% year-on-year. In terms of value, transactions amounted to US$964 billion from April-July, a 37% annual increase. A recent survey found that about 2/3 of Indians use UPI. That’s about 924 million people, compared to the 5 million using the digital rupee.
If India’s financial regulators remain committed to rolling out a CBDC, it might be in their interest to dedicate more resources to a wholesale version. Financial institutions could conceivably find more practical use cases for a digital rupee than the broader public. The cross-border CBDC project that has shown the most promise to date, the Bank of International Settlements and China-led mBridge, focuses exclusively on cross-border wholesale transactions.
Yet thus far, India has not dedicated substantial resources to the wholesale segment. Pilot projects involving secondary market transactions for government bonds and interbank lending in the call money markets do not seem to have been especially fruitful.