Bankers aren't buying into India's ‘e-rupee' CBDC, and they doubt the public will either
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(Kitco News) - The Reserve Bank of India (RBI) launched their wholesale central bank digital currency (wCBDC) pilot project at the beginning of November, and their retail CBDC (rCBDC) just yesterday. But after a month of access to the new ‘e-rupee’, the country’s bankers aren’t impressed, and they doubt the public will take to it either.
During the pilot, Indian banks have been using the wCBDC for settlements with one another. Seven bankers were interviewed by Reuters at the one-month mark, and participants say they see no advantages - and some key drawbacks.
First, each transaction using the e-rupee must be settled individually, while the existing interbank payment system allows banks to net trades together and settle them with the clearing corporation in bulk.
"There is no advantage over internet-based transactions,” said an executive at one of the participating private banks, “and the lack of netting is actually a big drawback. I don't think once the pilot is concluded, without any RBI pressure, banks will want to use it.”
Another disadvantage is that e-rupee transactions create additional accounting work for the banks. “At the moment it is more inefficient, because the trade volumes continue to be low on this, which means we have to manage cash as well and it results in more paperwork and additional labor,” a senior executive at a participating state-owned bank said.
The pilot also has banks using the wCBDC to settle trades of government securities. On Dec. 1, ?2.1 billion in bonds, worth $26 million USD, were traded using the e-rupee, which is significantly lower than the ?5 billion to ?6 billion rupees per day in bonds traded during the first two weeks of the trial.
Before launching the wCBDC project on Nov. 1, the RBI said a wholesale version of the digital currency could make settlement systems more efficient and more secure, as the payment mechanism eliminates the need for clearing corporations.
The RBI launched the e-rupee pilot for consumers and retailers on Dec. 1. It believes the rCBDC could also make digital payments more secure for the general public, but the bankers think the convenience of established solutions in the Indian market means the e-rupee will face an uphill battle on that front as well.
Real-time consumer payments system UPI enables users to transfer money between banks without sharing account information, and they are a strong player in India's digital payments market.
"UPI had clear advantages and that is the reason why it became so popular," another participating banker said. "When you already have a smooth and an efficient form of digital transaction, the shift may not come naturally.” The banker added that the RBI may see even less uptake for the retail CBDC than from wholesale users.
The retail CBDC pilot program includes the State Bank of India, Bank of Baroda, ICICI Bank, Union Bank of India, HDFC Bank, Kotak Mahindra Bank, Yes Bank and IDFC First Bank. Eventually, the RBI intends to expand the pilot to include all the commercial banks in the country.
Each bank participating in the trial will test the CBDC among 10,000 to 50,000 users, and gradually the pilot will be expanded to the country’s entire banking system.
To facilitate the transition to adoption, the participating banks have partnered with payment providers PayNearby and Bankit to enable merchants to accept payments using the digital rupee.
A special wallet to hold the e-rupee also needs to be downloaded by both customers and merchants. Initially, the wallet will operate as a standalone product, but the RBI intends to fully integrate the final version with existing mobile and internet banking services.