Indian digital currency fails to convince bankers in first test

Central banks around the world are launching the first experiments with the digital variant of their fiat currency. Right now it’s India’s turn and the bankers in the country are still there at this point not convinced of the possibilities from an Indian central bank digital currency (CBDC).

Too much extra work

Until now, the digital rupee has mainly resulted in extra paperwork for the bankers, which of course do not want that. In addition, they cannot yet really perceive the benefits that the digital rupee should yield. The bankers point out that the real benefits may be in retail and consumer traffic.

Meanwhile, the e-rupee has been launched for about one month for the wholesale segment, but the bankers are not satisfied with it. With the digital rupee, every transaction has to be settled by the banks and they are not waiting for that. That results in a lot of extra work, while there are few benefits.

In other words, the e-rupee creates extra work for the bank’s accountants, without any profit for them. According to the bankers, the current payment system works well in this area and for that reason no CBDC would be needed in the country.

The expected benefits

The original idea behind the e-rupee is to bring benefits in terms of settlements. Since the digital currency is backed by the central bank, it would no longer be necessary clearinghouses put in place to guarantee it.

In the first phase, the digital rupee was only used for government bonds on the second-hand market. India launched this pilot for the digital version of the rupee on November 1 this year. Meanwhile, the commercial payments pilot for the retail public was also launched on December 1.

The plans for the CBDC were already announced at the beginning of 2022 by the Indian finance minister. According to Prime Minister Narendra Modi, the e-rupee is an opportunity to strengthen the digital economy and a possible revolution for the fintech sector.