No benefits, more work: Say Some Bankers using CBDC pilot in India

Updated: December 3, 2022

India’s Reserve Bank of India is currently running two ongoing pilots to test and evaluate e-Rupee, the CBDC under development. The digital rupee is meant to be a response to the challenges of blockchain-based cryptocurrencies, and aims to take India into the age of virtual money, bringing the country in the ranks of other countries running pilots for their respective national digital currencies.

The wholesale use of e-rupee was launched last month for a select group of banks and participants, who could use it to settle accounts as part of inter-bank processes. The retail pilot of e-rupee has begun from December 1.

A total of nine banks are taking part in the wholesale pilot of e-rupee: The nine banks onboarded for the first pilot study are: State Bank of India, Bank of Baroda, Union Bank of India, HDFC Bank, ICICI Bank, Kotak Mahindra Bank, Yes Bank, IDFC First Bank and HSBC.

So far, participating banks have used the e-rupee for settling government security trades. Bonds worth billions of rupees have been settled so far.

What has been the response and feedback so far for India’s CBDC?

A report in Reuters spoke to two sets of bankers – public and private. As per the report:

  • Seven participants considered the experience of CBDC similar to internet banking.
  • One executive from a private bank said there was no advantage compared to internet banking, and a drawback was they could not group transactions or trades together for bulk settlement of the total amount of the trade.
  • The public bank official said another issue was that the CBDC trades, being a newly added activity, had to be accounted for, adding to the workload and paperwork.

All bankers appeared being initially enthusiastic about using the e-rupee. After trying it out, they hold more realistic opinions. A private banker, as per the report, said no bank would want to use e-rupee or CBDC without pressure from the RBI.

In the case of retail use of e-rupee, the report cites IMF’s statement on UPI being a strong contender and already a running success. In India over 50% of small payments are now done over UPI/BHIM apps, compared to over 85% in cash before the spread of mobile payments.

The CBDC is supposed to make money payment and settlement faster, cheaper and on-the-spot, without involving intermediaries like clearing houses in the case of wholesale markets. The e-rupee will also curtail the formation of any parallel economy in India due to any use of cryptocurrencies. For retail users, there will be an e-rupee app that banks and platforms will provide.

The CBDC is currently in the pilot stage, and may go through more improvements and refinements based on feedback received. As per RBI’s concept note, a CBDC can be deployed in two modes:

  • token based: just like cash, allows anonymous users to pay or receive rupees
  • account based: with an intermediary to verify ownership with KYC, and suitable for wholesale use as it allows maintaining of records and statements

CBDC pilots are currently running in countries like France, China, Saudi Arabia, Canada, and South Africa. Other countries are in various preparatory and proof of concept stages.

Amon the public in India, some are worried about inflation and the fall in the value of Rupee against the Dollar, and privacy and economic freedom being at risk with e-rupee.

The Reuters report concludes with a ray of hope for e-rupee (currently in the first month of pilot study). According to a banker, the CBDC and the rupee can both co-exist.

The whole thing is that ki bhaiyya…

Find out more:

Launch of wholesale pilot by RBI:

The concept note for e-Rupee:


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