Editorial: Digital leap

RBI’s decision to expand e-rupee is an acknowledgement of the rapid pace of adoption of digital payment methods

As the digital payments landscape is undergoing massive transformation, the Reserve Bank of India’s push to expand the scope and reach of its Central Bank Digital Currency (CBDC) or e-rupee is a welcome move. The first digital rupee in the wholesale segment was launched on November 1 last year and for the retail segment a month later. The central bank’s decision to expand the e-rupee to more locations and to include more participating banks is an acknowledgement of the rapid pace of adoption of digital payment methods. There are now 13 banks and 16 locations where the CBDC is being made available. India saw massive growth in digital payments during and after the pandemic. Transactions routed through digital modes have recorded a big leap in the last few years. In 2022-23, total digital payments recorded 57.8% growth in volume and 19.2% in value terms. India outpaced other nations to emerge as the largest player in real-time transactions at the global level, with a 46% share in 2022. The adoption of the retail CBDC has been gaining traction, crossing over a million users and 2.6 lakh merchants. The RBI is aiming for 10 lakh CBDC transactions per day by the end of this year. Considering the widespread usage of the UPI architecture — in July, 9.96 billion transactions were routed through it — interoperability with this payment system could help trigger widespread adoption. There are several benefits of using digital currency. Apart from bringing down the operational costs associated with physical cash management, it could also make the interbank market more efficient.

The digital currency also helps make cross-border payments cheaper, faster and more secure with their instant settlement features. Considering that India is a big recipient of remittances, this could lower the costs, bringing in wider benefits. With more Indians willing to transact digitally, this initiative will help retailers provide efficient and secure alternative payment methods to customers at their stores. Central banks across the world are willing to go for digital currencies. As many as 19 of the G20 countries are now in advanced stages of development of CBDCs. The digital rupee tokens will work in the same way as banknotes or coins do and can be used in lieu of cash. A ledger of the transactions is maintained with the regulator, eliminating the settlement mechanism between banks. The CBDC needs to be integrated into the payments system of India such as the UPI and digital wallets. The interoperability between these payment systems would be vital for the success of the digital economy. Since the CBDC will use cryptography, it will render the system safer as compared with the existing payment infrastructure. As large e-commerce players evince interest in adopting the CBDC and integrating it into their system, and as the technologies get more advanced, we could see smoother CBDC adoption.

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