3 minute read 17 Mar 2023
Digital Rupee

What will it take for the Digital Rupee to be widely acceptable in India?

By Subrahmanyam Oruganti

EY India Business Consulting Partner and Financial Services Risk Quant Leader

Subrahmanyam is a partner with the financial services consulting team. With 17 years of experience, he leads capital markets modelling, regulatory transformation, and automation.

3 minute read 17 Mar 2023

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  • Digital Rupee - the dawn of a revolution in digital payments

Aspects of scalability, regulation, privacy and technological consideration must be prioritized.

In brief

  • CBDC wallet design must meet criteria such as usability, stability, user-friendliness, and privacy protection.
  • Digital Rupee can be beneficial in areas such as financial inclusion, MSME financing, cross-border payments, securities settlement.

On 1 November 2022, the Reserve Bank of India (RBI) launched the Central Bank Digital Currency (CBDC) or Digital Rupee as a pilot[1], putting India among the 10 countries that have successfully launched digital currencies. Globally, more than 100 countries are working on launching their digital currencies, but with limited success[2].

India has acted fast and is moving swiftly toward adoption of its digital currency. In fact, a few banks have already begun informing their clients about the advantages of E-Rupee and how to connect bank accounts to CBDC wallets.

However, for Digital Rupee to become widely acceptable and to truly unlock the gains of a digital currency, the immediate focus must be on four aspects i.e., scalability, regulatory and privacy framework, operational standardization, and technological considerations.

Building acceptability

For any digital currency to scale and effect a significant change in the payments framework, it has to gain acceptance among all stakeholders, from commercial banks to intermediaries and end users.

It is expected that banks would do their own cost benefit analysis to decide on the feasibility of offering e-rupee services to their customers. At present, the requisite infrastructure to connect to the CBDC system might be too expensive and hence policymakers should consider ways to incentivize banks to adopt Digital Rupee on a large scale and ensure that the underlying technology offers maximum interoperability with legacy systems.

The CBDC wallet design must tick all the boxes – ease of use, convenience, stability, user-friendly interface, multi-lingual, voice-controlled functions, and more – to result in a positive experience.

Legal and regulatory framework

The legal and regulatory framework is perhaps the trickiest part of making Digital Rupee a widely used payment option. A framework that is limiting, divergent and not sufficiently in sync is a challenge.

For India, onboarding KYC norms and compliance are critical elements. The government would need to plan out the minimal requirement in identity proofs such that the Digital Rupee footprint can be maximized. A joint effort from various banks, multi-lateral agencies, and government agencies would help chalk out the specific requirements.

Macroeconomic considerations; focus on cross-border payments

As per IMF and the World Bank, for emerging economies, digital currencies can amplify the problem of currency substitution with CBDCs or stablecoins of developed countries.

A possible solution could be a programmable CBDC, where the end use can be programmed. The issuing central bank can limit use outside the issuing country, and wallets in recipient countries could be designed to allow local authorities to implement capital flow management measures and limits on non-resident holdings. Another solution could be tactical pricing mechanisms like fees on very large or frequent cross-border transactions to limit cross-border use. Multilateral collaboration would be the key to success.

Standardization and technology consideration

Technology considerations of cyber security and data warehousing are prevalent in domestic as well as international payments use cases but are amplified in cross-border uses cases. All parties connected to the infrastructure, including the central bank, financial intermediaries, telecom operators and merchants, should have effective cyber security safeguards and processes in place.

Agreements should regulate payment platforms and intermediaries. A detailed and articulated agreement that is established at the outset encompasses the relevant issues and identifies the applicable law would allow the digital currency infrastructure to operate smoothly across entities.

Potential use cases and way forward

Given that the above considerations are actively dealt with benevolent policy making, CBDC and more specifically Digital Rupee might prove to be a success story. For instance, in cross-border transactions via Digital Rupee, the payments from country can be directly transferred to another country in a single ‘payment corridor’. Similarly, with the advent of offline CBDC and financial inclusion, mass adoption of it in rural and sub-urban areas, the government might help solve the credit constraints and under-financing problem by using digital rupee transaction data for credit scoring, as collateral etc.

India has made a decisive start and must follow a considered approach to make the Digital Rupee as commonplace as cash or digital payments are today.


Digital payments ecosystem has transformed rapidly over the past five years, making India a leader in real-time payments transaction. For widespread adoption of the Digital Rupee, policymakers must facilitate an environment for greater private sector participation and incentivize legacy players for adopting new technology. 

About this article

By Subrahmanyam Oruganti

EY India Business Consulting Partner and Financial Services Risk Quant Leader

Subrahmanyam is a partner with the financial services consulting team. With 17 years of experience, he leads capital markets modelling, regulatory transformation, and automation.