The Reserve Bank of India launched its Central Bank Digital Currency (CBDC) pilot — the Digital Rupee (e₹) — in retail and wholesale variants in 2022-23. With over a million users and participating banks across multiple cities, India's CBDC experiment is among the world's most advanced, providing real-world data on the operational challenges and user behaviour patterns of digital central bank money.
A CBDC is fundamentally different from both physical cash and digital bank deposits. Unlike physical cash, it is digital and programmable. Unlike bank deposits, it is a direct liability of the central bank — there is no bank intermediary, no deposit insurance required, and no credit risk to the depositor. The RBI directly issues the e₹ to authorised banks and intermediaries, who distribute it to end users.
The retail e₹ uses a token-based architecture: digital tokens representing value that can be transferred peer-to-peer through a digital wallet, similar to physical cash changing hands. The wholesale e₹ uses an account-based architecture for large-value settlement between financial institutions, improving the efficiency of interbank settlement.
For the banking system, the CBDC creates both opportunity and risk. The opportunity is in programmable money: CBDCs can be programmed with spending conditions, expiry dates, and routing logic that physical cash cannot have. Government subsidy disbursement that can only be spent on specific categories of goods, time-limited stimulus that ensures spending velocity, and cross-border payments with embedded compliance logic are the programmable use cases.
The risk is disintermediation: if consumers hold e₹ directly with the central bank rather than bank deposits, banks lose a low-cost funding source. The RBI has explicitly designed the retail e₹ to avoid this — placing limits on CBDC holdings and requiring banks as intermediaries — but the long-term structural implications for the banking system are a live question that will be answered as the CBDC evolves.