India's Central Bank Eyes New Features for Digital Rupee, Cross-Border Use Cases

India's central bank, the Reserve Bank of India, is planning to introduce new features and use cases for the digital rupee, including cross-border payments with international partners. The RBI launched its wholesale digital rupee pilot in 2022, followed by a retail pilot, and aims to build on lessons from these pilots. The value of the digital rupee in circulation rose 334% YoY, but adoption has been sluggish, with only 1 million retail transactions by late June, despite incentives and partial employee salaries being paid in the currency.

The Reserve Bank of India (RBI) has announced plans to expand the scope of its central bank digital currency (CBDC) pilots, focusing on both retail and wholesale segments. According to its Annual Report 2024–25, the central bank aims to introduce new use cases and features for the digital rupee, building on the groundwork laid by existing pilots [1].

The RBI launched its wholesale digital rupee pilot in November 2022 and the retail pilot in December 2022, involving select banks in controlled environments. The central bank is now exploring CBDC pilots for cross-border payments on both bilateral and multilateral bases, signaling a push towards using the digital rupee for international settlements [1].

The digital rupee's value in circulation has grown significantly, increasing by 334% year-over-year (YoY) by late June 2024. However, adoption has been slow, with only 1 million retail transactions recorded by the end of June, despite incentives and partial employee salaries being paid in the currency [2].

To address these challenges, the RBI is enhancing the account aggregator framework to increase transparency and strengthen customer service. The central bank is also collaborating with private entities to develop a full-scale CBDC wallet, such as Mobikwik's e-rupee (e₹) wallet, which is available to all Android users and enables peer-to-peer (P2P) and peer-to-merchant (P2M) transactions [1].

While the global CBDC experiment is still in its early stages, India's Digital Rupee pilot has shown promising results. By early 2024, it had onboarded 1.3 million users and over 300,000 merchants. The pilot uses a token-based offline model and integrates smoothly with existing digital infrastructure like UPI and Aadhaar [2].

However, challenges remain, including financial inclusion, remittances, and privacy concerns. Experts believe that public-private partnerships, strong identity frameworks, and clear communication are key to gaining public trust in CBDCs [2].

References:
[1] https://www.cnbctv18.com/business/rbi-to-expand-digital-rupee-pilots-explore-cross-border-cbdc-use-cases-19612344.htm
[2] https://coinpedia.org/news/exclusive-indias-digital-rupee-pilot-sets-benchmark-for-cbdc-rollouts-says-polygon-labs-payments-head/