CBDCs: India’s digital rupee falls flat as low volumes blight trial run

Several Indian news outlets have reported on the lack of interest in the digital rupee.

The Hindu Business said it offers no discernible difference with “internet-based banking that users were already satisfied with.”

Early reports reveal low trade volumes, forcing banks to retain administrative burdens for cash. Central Bank Digital Currencies (CBDCs) are intended to replace cash.

Indian lawmakers push CBDC

Since April 2018, Indian lawmakers have tried to ban private cryptocurrencies, citing consumer protection and concerns over their use in illicit activities such as money laundering.

The Supreme Court deemed the ban unconstitutional, overturning the ruling. Lawmakers responded by imposing punitive taxes of 30% on income gained from cryptocurrency transactions and a further 1% as Tax Deducted at Source (TDS). Local exchanges reported a significant fall in trading volumes as a result.

Throughout this saga, the Reserve Bank of India and Finance Minister Nirmala Sitharaman pushed the digital rupee.

In March, Sitharaman said a digital rupee would be advantageous in settling both international and central bank transactions.

“We see clear advantages in a central bank driven digital currency, because in this day and age, bulk payments happening between- countries, large transactions between institutions and large transactions between central banks themselves of each country- are all better enabled with digital currency.”

The digital rupee pilot program went live on Dec. 1 with heavy coverage from local media.

The digital rupee fails to catch on

Contradicting local media, Reuters said the digital rupee pilot program had been up and running for a month. Based on this time frame, bankers said the project had failed to catch on.

The crux of the matter boils down to the digital rupee offering retail users no benefits over the existing internet banking system. What’s more, bankers blasted the netting inefficiencies concerning interbank settlements.

One banking executive said the digital rupee system works by each transaction having to be settled individually. In contrast, the old interbank system operated by bulk netting settlements with a clearing company.

“There is no advantage over internet-based transactions and the lack of netting is actually a big drawback.”

Another executive said the poor uptake and low volumes also meant a need to retain old systems. Operating both systems in tandem places an additional load on 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 labour.”

The reports suggest the appetite for CBDCs is low among Indians. Similar outcomes were noted following a one-year update on Nigeria’s eNaira CBDC project.

Geopolitical Analyst Nick Giambruno said the “massive failure” of the eNaira was symbolic of the distrust people have in the ruling elite.

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