India’s digital currency, known as the e-rupee, is facing a decline in activity as local banks have stopped inflating its metrics artificially. The Reserve Bank of India (RBI) managed to achieve a milestone of 1 million retail transactions in December 2023 with the help of incentives offered by local banks to retail users. However, after these incentives were withdrawn, daily transaction numbers fell to about 100,000, indicating a lack of organic demand for the e-rupee.
According to Reuters, the RBI had instructed banks to increase transactions to at least 1 million per day by the end of 2023 to test the system’s resilience at scale. With the decline in transaction numbers, questions have been raised about the future of the RBI’s digital currency initiatives, given the significant difference between artificially inflated metrics and actual usage. This decrease in activity comes at a time when the Bank for International Settlements (BIS) reported that only 12% of central banks are planning to issue retail central bank digital currencies (CBDCs) in the near future.
The BIS report also states that the issuance of wholesale CBDCs is more likely in the next six years than retail CBDCs, with nine wholesale CBDCs expected to be circulating by the end of the decade. Central banks are showing interest in wholesale CBDCs to enhance cross-border payments, especially in advanced economies and emerging market economies. This shift in focus towards wholesale CBDCs reflects a global trend among central banks to explore the potential benefits of digital currencies and their impact on the financial system.
The decline in e-rupee activity highlights the challenges faced by central banks in promoting and maintaining the adoption of digital currencies. As the field of digital currencies continues to evolve, central banks must strike a balance between driving innovation and addressing issues such as consumer demand and market readiness. The experience of India’s e-rupee serves as a valuable case study for other countries considering the implementation of CBDCs, emphasizing the importance of sustainable growth and addressing the underlying reasons for adoption.
The future of CBDCs in India and around the world remains uncertain, with central banks grappling with various factors such as regulatory frameworks, technological infrastructure, and public acceptance. As more countries explore the potential of digital currencies, collaboration and knowledge-sharing among central banks will be key to driving the successful implementation of CBDCs. In the case of India, the decline in e-rupee activity underscores the need for a comprehensive strategy to promote and sustain the use of digital currencies in a rapidly evolving financial landscape.
In conclusion, the challenges faced by India’s e-rupee highlight the complex dynamics of digital currency adoption and the need for a coordinated approach by central banks to drive innovation and address market demand. The evolving landscape of CBDCs presents both opportunities and challenges for central banks, requiring them to navigate regulatory, technological, and consumer-related considerations. As central banks continue to explore the potential of digital currencies, lessons learned from experiences like the e-rupee will be instrumental in shaping the future of CBDCs and their role in the global financial system.
