The Reserve Bank of India’s (RBI) digital rupee (e₹), launched as a Central Bank Digital Currency (CBDC) over two years ago, has yet to make a significant impact on India’s financial system. Despite some growth, the digital rupee remains a minor player in the country’s currency circulation.
As of March 31, 2024, the total value of digital currency in circulation for retail transactions stood at ₹234.04 crore, a substantial increase from ₹5.70 crore a year earlier, according to RBI data. Despite this growth, the retail digital rupee (e₹-R) comprises only a minuscule 0.006% of the total banknotes in circulation. The wholesale segment has performed even worse, with its value plummeting to just ₹0.08 crore in March 2024, down from ₹10 crore the previous year.
The digital rupee is designed as legal tender, functioning like physical currency in both retail and wholesale transactions. Experts cite several key reasons for its slow uptake:
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UPI dominance
The Unified Payments Interface (UPI) dominates India’s digital payment space, offering cost-free and convenient transactions. Madan Sabnavis, Chief Economist at Bank of Baroda, notes that systems like UPI, NEFT, and RTGS make it difficult for the digital rupee to establish itself unless it offers distinct advantages — which it currently does not.
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Lack of convenience
The digital rupee’s retail version is available in fixed denominations, which complicates everyday use. Users must make payments in the nearest available denomination, which is inconvenient for non-round transactions. The e₹-R is available in denominations ranging from 50 paise to ₹2,000, limiting its flexibility.
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Privacy concerns
Digital currencies generate detailed transaction records, raising fears about data surveillance and misuse. Ruchin Kumar, VP-South Asia at Futurex, emphasises that balancing transparency with user privacy while preventing illicit activities is a major challenge for the digital rupee.
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Lack of specific use cases
To succeed, the digital rupee needs compelling applications in sectors like agriculture and public welfare. Vijay Mani, Partner-Banking and Capital Markets Leader at Deloitte India, suggests that programmability and offline capabilities could help increase its adoption. Without these, the digital rupee lacks a clear incentive for users.
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Limited marketing efforts
Unlike the aggressive promotion that helped popularise UPI, the digital rupee has seen little marketing from banks. Mani adds that the banks' reluctance to spend heavily on promotion, unlike with UPI’s cashback incentives, has further slowed its adoption.
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