India expands CBDC project; plans programmability, offline use

India’s central bank, the Reserve Bank of India (RBI), is expanding its central bank digital currency (CBDC) project to include programmability and offline usage.

In its first monetary policy statement of 2024 on February 8, the central bank of the world’s most populous country said it is looking to enable additional functionalities of programmability and offline capability in CBDC retail payments.

The CBDC retail pilot currently enables person-to-person and person-to-merchant transactions, the RBI said in its statement.

The RBI, which will enter its 90th year of existence and operations in April, noted that while programmability will facilitate transactions for specific and targeted purposes, offline functionality will enable transactions in areas with poor or limited internet connectivity.

“At the current juncture, India’s potential growth is propelled by structural drivers like improving physical infrastructure; development of world class digital and payments technology; ease of doing business; enhanced labour force participation; and improved quality of fiscal spending,” RBI said in a press release.

A CBDC is a digital form of currency notes issued by the country’s central bank. As many as 130 countries, representing 98% of the global gross domestic product (GDP), are exploring a CBDC, according to the Atlantic Council.

“This is a great move to further grow the CBDC adoption and bring new use cases to the end users. We do hope they open this to all developers so that new use cases can emerge. It will be interesting to see how adoption increases with programmability being introduced,” Nischal Shetty, co-founder of Shardeum, an EVM-based, linearly scalable smart contract platform, said on Linkedin.

While the RBI puts together the offline capabilities of its CBDC, an existing popular payment platform—Unified Payments Interface—has already started offering offline payments without using the internet.

India’s CBDC has made significant progress, with the RBI meeting its target of one million daily transactions. The South Asian nation’s central bank started its first digital rupee pilot in the wholesale segment on November 1, 2022, while the retail digital rupee pilot began on December 1, 2022.

Miles to go

“If there’s a way to bridge this CBDC over to decentralized blockchains then we might see INR integrating into DeFi [decentralized finance]. This will help INR get stronger which would be a net positive for India,” Shetty added.

As of February 7, the Indian rupee (INR) remained stable compared to both its emerging market peers and a few advanced economies, according to the RBI. Despite a stronger U.S. dollar and elevated U.S. treasury yields, the depreciation of INR at 0.9% against the U.S. dollar on a financial year basis is lower compared to emerging market peers like Chinese yuan, Thailand baht, Indonesian rupiah, Vietnamese dong, and Malaysian ringgit, and a few advanced economy currencies like Japanese yen, Australian dollar, Korean won and New Zealand dollar.

INR’s relative stability in the recent period “reflects the strength and stability of the Indian economy, its sound macroeconomic fundamentals, financial stability and improvements in India’s external position,” RBI said in a statement.

RBI recently started discussions with the Hong Kong Monetary Authority (HKMA), the U.S. Federal Reserve, and the international payment platform SWIFT to explore cross-border payments for CBDCs. RBI is also looking to introduce the digital rupee in the call money market and plans to use CBDCs as tokens for call money settlement. In the Indian money market, call money is an important segment that enables banks to earn interest on their surplus funds.

“CBDC is aimed to complement, rather than replace, current forms of money and is envisaged to provide an additional payment avenue to users, not to replace the existing payment systems,” the RBI said in its concept note for CBDC in October 2022.

To learn more about central bank digital currencies and some of the design decisions that need to be considered when creating and launching it, read nChain’s CBDC playbook.

Watch: India is going to be the frontrunner in digitalization