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Central Bank Digital Currencies in India: The Future of Money or a Failing Experiment?

Over the last decade, India has established itself as a world leader in digital payments, accounting for 49% of global real-time digital transactions.¹ India’s prominence in digital payments has predominantly stemmed from its success in widespread adoption of the Unified Payments Interface (“UPI”) — an instant real-time payment system enabling users to transfer funds between bank accounts via mobile devices. UPI has substantially boosted the digital economy in India and is a key contributor to the country’s move toward a cashless economy.

In December 2022, to build upon its success in digital payments, the Reserve Bank of India (“RBI”) initiated the implementation of the e-Rupee — a Central Bank Digital Currency (“CBDC”) — with the objective of bolstering the Indian financial system’s infrastructure to reduce settlement risks as well as increase access, financial inclusion and transactional convenience for individuals and businesses.²

What are Central Bank Digital Currencies?

CBDCs are digitized versions of each country’s currency, which is created and issued by the central bank. It would function similarly to physical cash.³ Most CBDCs operate on distributed ledger technology, a secure technology similar to blockchain, where each transaction is recorded in a decentralized ledger, making it difficult for one to modify or tamper with the data.⁴

The concept of decentralized digital currency emerged in 2009, with the introduction of Bitcoin, which remains one of the most well-known forms of digital currency. The acceptance of Bitcoin, Ethereum and other cryptocurrencies and stablecoins⁵ as an investment asset class and a mode of financial transactions, on the promise of transparency, has prompted governments across the world to implement CBDCs — their own form of digital currencies.^{6, 7, 8}

The Promise of CBDCs: Transitioning to a Transparent and Efficient Monetary System

The rapidly evolving digital finance landscape positions CBDCs as a catalyst for substantial advancements in monetary systems. Below, we have examined the promise of CBDCs to deliver enhanced transparency, efficiency and broader financial inclusion.

Reduction in role of intermediaries: CBDCs aim to streamline payment processes, reducing the need for certain intermediaries. Banks may see their role evolve to focus on distribution, specialized services and credit provisions.
Legal tender status: Unlike the prominent forms of digital currencies that currently exist, as a central bank issued currency, CBDCs would hold a legal tender status within its jurisdiction. It would also be recognized for settlement of debts and tax obligations.
Enhancing transparency and mitigating the risks of illicit activities: Given its inherent traceability, CBDCs have a sizable advantage in enhancing transparency in the monetary system through the monitoring of financial transactions. This may aid in the detection and prevention of money laundering, fraud and other illicit activities.
Cross-border interoperability: CBDCs have the potential to streamline cross-border payments by reducing reliance on traditional correspondent banking networks. This could lead to faster, more efficient and potentially lower-cost transactions. However, achieving true interoperability across different CBDC systems requires international cooperation and standardization.
Financial inclusion: The e-Rupee would allow for financial inclusion for a significant portion of the population in India that remains underbanked. CBDCs would enable a digital form of the currency accessible without bank accounts and, eventually, without internet connectivity. A major benefit for India is direct access to government subsidies, which will enable public policy implementation in a manner that allows for reduced risks via robust monitoring.
Curbing black money in India: India still faces challenges related to black money transactions, despite previous legislative efforts, such as the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015. The introduction of CBDC, which enables traceable digital record of monetary movements, would hinder the concealment of black money and reduce the scope for tax evasion.

Navigating the Risk Landscape: Considerations for CBDC Adoption

Despite the compelling advantages CBDCs offer in terms of modernizing financial infrastructure, the successful and secure integration of these digital currencies necessitates an approach that navigates a complex array of potential risks, which include:

Financial privacy: CBDCs will give the central government absolute control over one’s funds in terms of monitoring and tracking the transactions of citizens. While the benefit of this would be a reduction in money laundering, bribery and corruption, as well as the funding of other illicit activities, it would also empower government surveillance where the financial activity of persons and businesses would be monitored, bringing potential risks, such as the denial of services or the freezing/seizing of assets.
Cybersecurity threats: The implementation of a national digital form of currency would inherently create a substantial cybersecurity risk. The centralization of the data would be a single point of failure that could lead to breaches, including, but not limited to, potential compromise of individual financial privacy, unauthorized manipulation of financial data and data exfiltration.
Impact on financial institutions and employment: The global financial system heavily depends on intermediaries, with the financial services sector playing a crucial role in developed economies. However, the anticipated efficiencies of CBDCs necessitate careful consideration of potential consequences, including job displacement, constraints on credit availability and broader implications for policy development and regulatory oversight. These factors must be thoroughly assessed prior to any significant alteration or reduction of intermediary roles.
Prioritization by fintech companies: The rapidly evolving fintech landscape presents a dynamic environment where emerging start-ups may prioritize speed of market entry over robust cybersecurity and consumer protection measures, demanding vigilant regulatory attention.

Operational Impact on the Financial Services Sector

The advent of CBDCs will fundamentally reshape the operational landscape of India’s financial services sector. A significant shift in monetary control is expected, as central banks gain more direct influence over money supply with the substantial migration of citizen funds to CBDC platforms.

This shift poses a considerable challenge to private banks, impacting their lending capacity and overall financial stability as traditional deposit bases erode. Furthermore, the anticipated efficiency of CBDCs, exceeding current systems such as SWIFT, RTGS and NEFT, suggests a potential diminishing use of these established transaction modes. This necessitates a strategic pivot toward future-ready CBDC-compatible technologies and the development of innovative financial products.

By offering incentives for customers to utilize bank-provided CBDC wallets, creating investment products that leverage CBDC holdings and establishing credit lines based on digital currency, banks can not only mitigate potential disruptions, but also capitalize on the transformative opportunities presented by CBDCs. This proactive approach is critical for ensuring continued relevance in the evolving digital currency ecosystem.

Compliance Challenges for Financial Institutions

The full-scale launch of CBDCs will not only evolve the business strategies of Indian financial institutions, but will also transform compliance priorities. Anticipating an iterative regulatory landscape, particularly in the initial phases, financial institutions must demonstrate agility in adapting to the RBI’s evolving guidelines, which will be informed by real-world use-case data.

A core focus will be the stringent enforcement of AML-KYC protocols for digital transactions, requiring the deployment of advanced analytics and real-time monitoring systems to effectively detect and prevent illicit activities. Furthermore, data protection will ascend to the forefront of corporate governance, demanding robust cybersecurity measures to safeguard against potentially devastating cyberattacks.

The most substantial investment to ensure total success will be in technological integration, enabling seamless interoperability, scalability and security while facilitating a smooth transition from traditional banking methods. However, this transition necessitates a sustained commitment from financial institutions, requiring continuous innovation and adaptability, driven by evolving regulatory requirements as well as the developing digital currency ecosystem.

Path to Adoption in India and Across the Globe

In 2020, 35 countries across the world were considering CBDCs, whereas in 2025, 134 countries, representing 98% of the global GDP, are exploring them. Of this group, 11 countries, including Nigeria, Jamaica, the Bahamas and Anguilla, have achieved a full launch.^{9, 10} When India launched its CBDC pilot program in December 2022, it aimed for one million daily transactions by the end of 2023.^{11, 12} This goal was achieved with various government-owned and private sector banks depositing employees’ salaries and benefits into their CBDC wallets.^{13, 14} However, while the retail e-Rupee¹⁵ (“CBDC-R”) witnessed significant growth in FY 2023-24, the wholesale e-Rupee (“CBDC-W”) experienced a considerable drop in usage. The RBI reported that for FY 2023-24, CBDC-R circulation grew to INR2.34 billion compared to INR57 million in the previous financial year. On the other hand, circulation of CBDC-W dropped to INR0.8 million in FY 2023-24 compared to INR109 million in the previous financial year. ^{16, 17} Currently, the pilot program launched in India has approximately five million CBDC users and 16 banks participating in the expansion of this process.¹⁸ While there is traction in the CBDC space, with fintech companies integrating e-Rupee and another party closing the first all-e-Rupee deal in India, worth $3.5 million,¹⁹ there has been a slowdown in the expected progress of CBDCs. Recognizing the potential ramifications for end-users, the RBI has adopted a deliberate and phased approach to the CBDC rollout, prioritizing a thorough assessment of its impact before proceeding with a complete national launch, as referenced by the governor of the RBI as recent as September 2024.²⁰

Where are the Efforts Stalled?

Despite the RBI’s articulated strategy of a deliberate and phased CBDC implementation, several key factors are contributing to a perceived stagnation in its progress. Notably, the dominant presence of the UPI presents a significant challenge. The UPI’s rapid adoption and widespread utilization, evidenced by its substantial contribution to India’s digital payment volume, have established it as a formidable incumbent in the retail payments landscape. Its real-time payment capabilities and seamless interoperability across banking institutions have fundamentally transformed transactional practices, achieving an 83% share of total payment volume by 2024 — a dramatic increase from 34% in 2019 — with transactions reaching INR172 billion out of the total INR209 billion payment volume. The key distinction between the two is that CBDC is a legal tender, similar to physical currency, while the UPI is a mode of payment that facilitates interbank transactions. Although both serve similar purposes of digital financial transactions, the UPI focuses on facilitating fast and efficient quick transfers for smaller, retail-driven payments, whereas CBDC is designed to enhance security and enable tracking of monetary transactions, including large transactions.

Transitioning to a Digitally Transparent Future

India’s introduction of a CBDC exhibits a pivotal advancement toward a more transparent and efficient digital financial infrastructure. This initiative holds the promise of transforming the paradigm of financial transactions, fostering enhanced security and trust within the digital economy. However, realizing the full potential of CBDC necessitates addressing critical challenges. Notably, data privacy concerns, robust cybersecurity frameworks, the competitive landscape — dominated by established platforms such as the UPI — and comprehensive public education on its use-cases will need to be addressed ahead of wider adoption or scaling of CBDC. To ensure successful implementation, a multifaceted approach is required. Engaging in strategic public awareness campaigns, facilitating seamless interoperability with existing digital payment ecosystems and establishing robust cybersecurity protocols are essential. Furthermore, ongoing research and stakeholder engagement are crucial for navigating the evolving complexities of digital currency. By proactively mitigating risks, fostering public trust and pursuing a strategic implementation, India can leverage CBDC to cultivate a resilient, inclusive digital financial future without corporates and citizens fearing for a breach of privacy.

1. ACI Worldwide, “Inside Real-Time: India” (last accessed March 2024)

2. Reserve Bank of India, Digital Rupee – FAQs (January 2025)

3. Forbes, “Digital Currency: The Future Of Your Money” (January 2024)

4. IBM “Central Bank Digital Currency (CBDC) and blockchain enable the future of payments” (August 2023)

5. A stablecoin is a digital asset that remains stable in value against a pegged external traditional asset class.

6. Investopedia “Digital Money: What It Is, How It Works, Types, and Examples” (March 2025)

7. US News “The History of Bitcoin” (February 2025)

8. Forbes, “Digital Currency: The Future Of Your Money” (January 2024)

9. Atlantic Council, “Central Bank Digital Currency Tracker” (February 2025)

10. Edgar, Dunn & Company, “Decoding Retail CBDCs: Are Central Bank Digital Currencies Hype or Hope?” (August 2024)

11. Ministry of Information and Broadcasting Government of India, (December 2022)

12. FE BFSI, “Must target 1 million CBDC transactions per day: RBI DG” (July 2023)

13. Coin Desk, “India’s Digital Rupee Crossed a Million Transactions in 1 Day With Some Help From Banks” (March 2024)

14. Reuters, “India’s digital currency transactions top 1 mln/day in Dec -sources” (January 2024)

15. A retail CBDC is a form of CBDC used by the general public for day-to-day and commercial transactions. Whereas a wholesale CBDC is a form of CBDC used among banks and other financial institutions for making interbank payments, high-value payments, and securities transactions.

16. Coingeek, “Indian banks offer incentives to lift e-rupee use as wholesale CBDC usage plunges’’ (June 2024)

17. The Reserve Bank’s Accounts for 2023-24

18. Global Government Fintech, “India CBDC trial has more than five million users but ‘no rush’ for launch: RBI governor’’ (September 2024)

19. Reuters, “PayPal-backed Mintoak strikes India’s first e-rupee related deal, worth $3.5 million, sources say’’ (March 2024)

20. Global Government Fintech, “India CBDC trial has more than five million users but ‘no rush’ for launch: RBI governor” (September 2024)