The Reserve Bank of India (RBI) is actively partnering with financial institutions to implement innovative features aimed at popularizing the central bank’s digital currency, commonly known as the e-rupee.
Retail transactions involving the Central Bank Digital Currency (CBDC) currently stand at an average of approximately 18,000 daily transactions, significantly falling short of the RBI’s ambitious target of one million daily transactions by the end of 2023.
Among the key enhancements being considered are enabling e-rupee transactions to occur even when customers are offline and establishing a connection between the e-rupee and India’s widely-used Unified Payments Interface (UPI). This move is intended to make digital rupee transactions more convenient and efficient, as UPI is a real-time payment system that permits seamless money transfers across multiple banks without disclosing sensitive bank account information.
The RBI has been urging banks to make the e-rupee interoperable with UPI through a QR code system, according to two banking insiders. Such interoperability would allow payments to be processed through well-established UPI QR codes. Some major banks, including the State Bank of India, have already activated this feature.
Sharat Chandra, co-founder of India Blockchain Forum, an industry collective, emphasized that while making UPI QR codes interoperable with the digital rupee would reduce friction, adopting CBDC payments would also require incentives.
Furthermore, the RBI and participating banks are actively exploring ways to enable the use of e-rupee in scenarios where both the customer and the merchant are offline. However, as of now, the RBI has yet to approve any specific technology proposals for offline transactions.
HDFC Bank, a leading private lender, reportedly collaborates with technology firm IDEMIA to develop a version of offline CBDC transactions designed for feature phones. However, HDFC Bank declined to provide official comments on this initiative.
The introduction of novel use cases for CBDCs, such as offline functionality, is expected to facilitate transactions where network connectivity may be limited, as highlighted by Akhil Handa, a senior executive at the Bank of Baroda. Handa also noted that as these new features are implemented, there is potential for a gradual increase in retail CBDC transaction volumes.