India makes strides in CBDC use cases in 2024

India‘s blockchain-based digital rupee made significant progress in 2024 as the Reserve Bank of India (RBI) achieved notable advancements with its central bank digital currency (CBDC) use cases.

A CBDC is a digital form of currency notes issued by the country’s central bank. According to the Atlantic Council, as many as 130 countries, representing 98% of the global gross domestic product (GDP), are exploring CBDCs. So far, three countries—the Bahamas, Jamaica, and Nigeria—have fully launched CBDCs, while several others, like India, are still in the pilot phase.

“CBDC is (an) area where RBI among the central banks is a pioneer. Almost every central bank is talking about, or they’re experimenting [with], or they’re discussing about CBDC. But actual launching of a pilot project has been done by very few,” former RBI Governor Shaktikanta Das said.

RBI started its first digital rupee pilot in the wholesale segment on November 1, 2022, to settle secondary market transactions in government securities. It started the pilot with nine banks—State Bank of India (NASDAQ: SBKFF), Bank of Baroda, Union Bank of India, HDFC Bank (NASDAQ: HDB), ICICI Bank (NASDAQ: IBN), Kotak Mahindra Bank, Yes Bank, IDFC First Bank, and HSBC (NASDAQ: HSBC). 

The retail digital rupee pilot started on December 1, 2022, and users were able to transact through a digital wallet offered by the participating banks and stored on mobile phones or devices.

“The e-rupee’s pilot phase in 2024 marked steady progress, with the RBI expanding trials to cover more use cases in wholesale and retail segments,” Rohan Sharan, founder and chief executive of Timechain Labs, an on-chain application development firm utilizing BSV blockchain technology, told CoinGeek. 

Although India’s central bank has set no target date for its full-fledged rollout, Das informed this year that new use cases for the e-rupee “are coming up every day.” For instance, Indian lenders started experimenting in 2024 with providing CBDC credit to tenant farmers without a land title or a formal registration of the tenancy agreement.

This year, the e-rupee was also utilized to connect purpose-bound money with generating agricultural carbon credits. For instance, banks can impose restrictions on the use of the money, ensuring it is only spent on specific items like fertilizers or other raw materials.

Some banks started providing programmed CBDC loans to tenant farmers so that they can be used for a specific purpose, such as buying fertilizers. In these cases, the CBDC can only be encashed and utilized in a fertilizer depot; it cannot be used elsewhere. 

The year 2024 also saw the Indian state of Odisha introducing the Subhadra Yojana, a direct transfer program for women, making it the first government initiative to utilize CBDC. Under the scheme, beneficiaries receive Rs 10,000 ($118) annually in digital rupees, which can be used through UPI QR codes or transferred to bank accounts. The Unified Payments Interface (UPI) is an instant real-time payment system that facilitates inter-bank transactions through mobile phones.

“India’s CBDC, or e-rupee, remains in its pilot phase as of 2024. The RBI has been testing its functionality across various sectors to gauge its viability for retail use. Although there has been progress in terms of trials and stakeholder engagement, widespread adoption is still pending due to ongoing assessments of its impact on traditional banking systems,” Sharat Chandra, founder of EmpowerEdge Ventures and a startup enabler, told CoinGeek.

Also this year, the RBI said it is looking to enable additional functionalities of programmability and offline capability in CBDC retail payments. While programmability is expected to facilitate transactions for specific and targeted purposes, offline functionality will allow transactions in areas with poor or limited Internet connectivity.

The central bank also announced plans to make its e-rupee accessible to more retail users by including non-bank payment system operators to offer CBDC wallets. The move was intended to test how resilient India’s CBDC platform is in handling multi-channel transactions.

“The e-rupee symbolizes India’s push toward a robust digital economy, balancing innovation with regulatory prudence. We saw steady progress as it expanded its scope and adoption. By the end of the year, over 1.5 million users and 300,000 merchants were participating in the pilot, spanning 26 cities,” said Raj Kapoor, founder of India Blockchain Alliance (IBA).

“The highlights were the number of participants that increased significantly, with large banks like State Bank of India, ICICI, and HDFC supporting adoption through dedicated interfaces. Efforts were made to integrate the e-rupee with existing Unified Payments Interface infrastructure, aiming to enhance accessibility, although this is still work in progress. Some preliminary testing with neighbouring countries also showed promise for efficient, real-time international remittances,” Kapoor added.

Another significant progress for India’s e-rupee this year was RBI exploring the possibility of using its CBDC in commercial papers (CPs) and certificates of deposits (CDs) on a trial basis. CPs are short-term debt instruments issued by companies to raise funds, while CDs are fixed-income investment instruments that investors from financial institutions and commercial banks can take out. Securities tokenization features could also be tried out in the pilots. 

“The RBI focused on pilot projects in 2024. Successful trials in select cities demonstrated the viability of wholesale transactions. Partnerships with banks and fintech companies laid the foundation for a robust CBDC ecosystem,” Amit Kumar Gupta, a legal practitioner at the Supreme Court of India, told CoinGeek.

However, the RBI has issued a word of caution this year, saying that while CBDCs can open up a world of new opportunities, they can also reduce bank deposits, affecting the credit-creating capacity of commercial banks. As deposits are a cheap and stable source of funding for banks, substituting bank deposits with CBDCs could impact banks’ overall funding and ability to lend. 

“CBDCs could also impact the commercial bank reserves at the central bank and open market operations,” the central bank pointed out.

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