India’s digital currency, the e-rupee, has seen a significant drop in usage following an initial peak, reflecting the broader challenges faced by many countries in gaining public support for digital currencies.
The Reserve Bank of India (RBI) launched the e-rupee pilot in December 2022, aiming to establish it as a digital alternative to physical cash. By December 2023, the initiative achieved its ambitious target of 1 million retail transactions per day. This milestone was reached through strategic measures, including offering incentives to retail users and partially disbursing bank employees’ salaries in e-rupees.
However, following the reduction of these incentives, daily transaction numbers have dropped sharply to about 100,000, according to sources involved in the pilot. This decrease highlights the lack of organic demand for the e-rupee, as noted by one of the bankers on the project. These sources, who requested anonymity due to media restrictions, revealed that the ongoing transactions are largely due to banks continuing to use the e-rupee for disbursing employee benefits, causing a slight uptick to 250,000-300,000 transactions per day towards the end of each month.
The RBI’s push to test the system’s resilience at scale has concluded, and there are currently no plans to rapidly expand the pilot. The focus is now on refining the technology and developing practical use cases for the digital currency, with the expectation that adoption will increase as these use cases emerge.
This trend in India mirrors global experiences. A survey by the Bank of International Settlements found that one-third of 86 central banks are piloting central bank digital currencies (CBDCs). Even among those that have launched, such as in the Bahamas and Jamaica, success has been modest. An April note from the Federal Reserve Bank of Kansas City observed that for consumers to embrace a retail CBDC, it must offer added value over traditional cash.
India’s initial surge in e-rupee transactions showcases the potential for digital currencies. However, it also underscores the necessity of continuous incentives and valuable use cases to sustain long-term adoption. The insights gained from this pilot will be crucial for shaping the future of digital currency strategies in India.
Photo source: Google
By: Montel Kamau
Serrari Financial Analyst
25th June, 2024
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