India's Central Bank Takes Cautious Approach to Digital Currency Rollout

India’s central bank, the Reserve Bank of India (RBI), has signaled a measured and cautious approach to the rollout of its central bank digital currency (CBDC). The bank is prioritizing thorough evaluation of the potential impacts of the technology before proceeding with a broader implementation.

Focus on Long-Term Potential

Speaking at a conference in Cebu, Philippines, RBI Deputy Governor T. Rabi Sankar discussed the promising long-term benefits of CBDCs, particularly in the areas of cross-border payments, trade settlements, and remittances. However, Sankar stressed that the risks associated with the new technology are still not fully understood, and as such, the central bank is in no rush to expand its CBDC usage.

"We are in no hurry to roll it out immediately," Sankar stated. "Once we have some visibility of what the outcome or impact will be, we’ll roll it out. We don’t keep a specific timeline for that."

Slow Adoption of the E-Rupee

India's CBDC, known as the e-rupee, was officially launched in December 2022 as a digital version of the country's fiat currency. Despite its launch over a year ago, adoption has been relatively slow. By mid-2024, the RBI reported that only 1 million retail transactions had been completed using the e-rupee. This slow uptake can be partially attributed to incentives offered by local banks, such as using the digital currency for salary distributions, to encourage use.

Concerns Over Banking Stability

In addition to the cautious approach to rollout, the RBI has raised concerns about the broader economic implications of CBDCs. In August 2024, Deputy Governor Michael Debabrata Patra highlighted potential risks to banking stability posed by CBDCs. He warned that the digital currency could be misperceived as a "safe haven" during financial crises, leading individuals to withdraw funds from banks in favor of CBDCs. This, Patra noted, could increase the risk of "bank runs" and create instability in the banking sector.

Patra also pointed out that the full impact of CBDCs on bank deposits and deposit insurance systems is still uncertain. Given the potential for disruptions, he emphasized the importance of a careful and gradual approach to CBDC adoption.

Conclusion

While the e-rupee has the potential to reshape the way India handles transactions and payments, the RBI is focused on ensuring that the risks and benefits are well understood before moving forward with a broader rollout. As the central bank continues its evaluation, stakeholders will be closely watching the evolution of India’s digital currency landscape and the steps the RBI takes to balance innovation with financial stability.