Reserve Bank of India building facade

Reserve Bank of India’s CBDC enhancements aim to boost adoption

The Reserve Bank of India (RBI) is mulling over new functionalities for its retail central bank digital currency (CBDC) to trigger higher adoption levels among residents.

A Reuters report cites six individuals with knowledge of the matter who confirmed the efforts of the RBI to make the digital rupee compete favorably alongside other payment alternatives. Top of the list for the RBI is the integration of offline payments with the digital rupee, designed to achieve greater financial inclusion.

While technical details for the operation of the offline payment functionality remain sparse, the central bank may likely include contactless payments using near-field communication (NFC) technology.

Indi’s HDFC Bank is reportedly working on technical solutions to support offline CBDC payments in partnership with technology firm IDEMIA for specific mobile devices.

The RBI is also keen on linking the digital rupee with the Unified Payments Interface (UPI), a real-time payment system developed in India that allows for transferring funds between multiple banks. Currently, the central bank is eyeing an integration using QR codes with one of India’s leading lenders, YES Bank, leading the way.

Integrating with the UPI will offer a range of benefits for the digital rupee, including offering users the option to pay with both systems from a single platform. With over 300 million UPI users and merchants, experts have opined that integration will lead to a spike in the number of new users for the CBDC.

However, there are counterarguments that UPI’s dominance could continue to overshadow the digital rupee unless the Indian banking regulators roll out ambitious initiatives to attract new users.

The RBI could have a few tricks up its sleeve, including using the digital rupee to improve the landscape for cross-border payments. Head of the RBI Shaktikanta Das confirmed that India has since opened discussions with several Southeast Asian countries and the United Arab Emirates (UAE) to explore CBDCs in cross-border transactions.

Falling short of the target

Barely three months after the start of the retail pilot, the RBI announced early wins that it had onboarded over 50,000 users and 5,000 merchants. The central bank had set its sights on 1 million digital rupee transactions per day before the end of the year.

However, daily digital rupee transactions currently hover around 18,000, leaving the central bank with a steep mountain to climb. The proposed features are widely expected to play a major role in bringing the banking regulator closer to its target.

“As new features get added, a gradual pickup in retail CBDC transaction volumes will follow,” said Akhil Handa, executive at Bank of Baroda.

To learn more about central bank digital currencies and some of the design decisions that need to be considered when creating and launching it, read nChain’s CBDC playbook.

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