Global: Reserve Bank of India Collaborates with Banks to Enhance Adoption of Central Bank Digital Currency (CBDC)

Cashfree gets RBI green light for payment aggregator licence
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The Reserve Bank of India (RBI) is actively working with financial institutions to introduce new features aimed at promoting the adoption of the central bank digital currency (CBDC), commonly referred to as the e-rupee. This move comes as retail CBDC transactions have been averaging around 18,000 per day, significantly below the RBI’s target of one million daily transactions by the end of 2023, according to six sources familiar with the matter.

Among the new features being considered is the ability to conduct digital rupee transactions even when customers are offline. Additionally, there are plans to link the e-rupee with India’s popular Unified Payments Interface (UPI), an instant real-time payments system that enables users to transfer funds across multiple banks without revealing their bank account details.

While the sources preferred to remain anonymous due to a lack of authorization to speak to the media, two of the bankers mentioned that the RBI has been encouraging banks to make the e-rupee interoperable with UPI through the use of a QR code. This interoperability would enable payments through the already widely distributed UPI QR codes, a move that some large banks, including the State Bank of India, have already activated.

Sharat Chandra, co-founder of India Blockchain Forum, an industry collective, highlighted the need for incentives to drive CBDC adoption, stating, “Interoperability of UPI QR Code with digital rupee will remove friction … but this will not drive adoption unless CBDC payments are incentivized.”

Furthermore, discussions between the RBI and banks include exploring ways to facilitate the use of the e-rupee in situations where both the customer and the merchant are offline. While various technology proposals are under review by the RBI, none have received official approval, as reported by one source familiar with the matter.

Notably, HDFC Bank, one of India’s top private lenders, is collaborating with technology firm IDEMIA to develop an offline version of CBDC transactions specifically designed for feature phones, according to two insiders aware of the project. However, HDFC Bank declined to comment on this development.

Akhil Handa, a senior executive at Bank of Baroda, emphasized that innovative features like offline functionality for CBDC would likely drive an increase in retail CBDC transaction volumes as they are introduced.

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