India’s E-Rupee Faces Decline as Banks Withdraw Incentives

India’s digital currency, the e-rupee, is experiencing a decline in activity after local banks ceased artificially inflating its metrics.

Decline in e-Rupee Transactions

India’s central bank digital currency (CBDC) appears to be losing momentum, with a significant drop in transactions compared to its peak in December 2023. According to sources familiar with the matter, the Reserve Bank of India (RBI) achieved 1 million retail transactions last December largely due to local banks offering incentives to retail users and disbursing a portion of bank employees’ salaries using the e-rupee.

However, now that these incentives have been withdrawn, daily transaction numbers have declined to about 100,000. This suggests a lack of organic demand for the e-rupee.

“A lack of organic demand to use the e-rupee is evident,” say sources familiar with the matter.

Future of RBI’s Digital Currency Initiatives

The RBI had earlier requested banks to increase transactions to at least 1 million per day by late 2023 to test the system’s resilience at scale. However, this initiative has now ceased, raising questions about the future of RBI’s digital currency projects. The stark contrast between artificially inflated metrics and actual usage is becoming more apparent.

Global Trends in CBDCs

In mid-June, the Bank for International Settlements (BIS) released a report indicating that only 12% of central banks plan to issue retail CBDCs in the mid-term. The likelihood of a wholesale CBDC being issued within the next six years is now greater than that for retail CBDCs. BIS suggests that there could be nine wholesale CBDCs publicly circulating towards the end of this decade.

Central banks remain interested in wholesale CBDCs primarily to enhance cross-border payments in both advanced economies and emerging markets.

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