India pushes for digital rupee in 2023 as provincial governments explore blockchain use cases

India’s blockchain-based digital rupee made significant progress in 2023 as the Reserve Bank of India (RBI), the country’s central bank, engaged several lenders for a trial run of its central bank digital currency (CBDC).

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.

India’s digital rupee is currently under trial for retail and wholesale use and has reportedly been rolled out to 1.5 million users. The RBI is currently targeting one million daily transactions for its digital currency.

“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.

“The use of offline feature in CBDC would also be beneficial in remote locations and offer availability and resilience benefits when electrical power or mobile network is not available,” RBI’s note said.

RBI started its first digital rupee pilot in the wholesale segment on November 1, 2022, to settle secondary market transactions in government securities. It identified nine banks—State Bank of India (NASDAQ: SBKFF), Bank of Baroda, Union Bank of India, HDFC Bank (NASDAQ: HDB), ICICI Bank (NASDAQ: IBN), Kotak Mahindra Bank, Yes Bank, IDFC First Bank, and HSBC (NASDAQ: HSBC)—for participation in the pilot.

The retail digital rupee pilot started on December 1, 2022, and users were able to transact through a digital wallet offered by the participating banks and stored on mobile phones or devices.

“Once programmability comes in, that’s when more innovative types of payments that we have been talking about, and cross border payments in particular, will become prominent with the CBDC,” pointed out Rohan Sharan, founder and CEO of Timechain Labs, an on-chain application development firm that’s utilizing BSV blockchain technology, in an exclusive interview with CoinGeek.

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. The central bank has reportedly assembled a working group for discussions with its global peers.

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 a very important segment that enables banks to earn interest on their surplus funds.

Earlier this year, Indian retail giant Reliance Retail partnered with ICICI Bank, Kotak Mahindra Bank, and fintech firm Innoviti Technologies to launch in-store digital rupee payments. The retail branch of Fortune Global 500 firm Reliance Industries Ltd., led by India’s richest man Mukesh Ambani, became the largest Indian firm to adopt the nation’s CBDC.

Some of the banks in India, including HDFC Bank, Yes Bank, and IDFC First Bank, are lining up incentives for users to push transactions using the digital rupee, including cash-backs and reward points.

Provincial governments warm up to blockchain

While India’s federal government clarified that it is not against blockchain technology but that cryptocurrencies need to be monitored, several provincial governments have started experimenting with blockchain’s immutability.

From putting land records and certification on blockchain to introducing an online portal for lodging police complaints, India is warming up to the technology. This is a significant shift in the world’s biggest democracy which traditionally relies on hefty paperwork for administration work and maintaining records.

The South Asian nation’s Finance Minister Nirmala Sitharaman expects blockchain use in India to rise by about 46% in the next few years.

“[Blockchain] gives us so many options. It can be used in so many different ways. So we are not against the technology,” Sitharaman said earlier this year.

In the northern Indian state of Uttar Pradesh, a police unit in Firozabad city launched an online complaint portal, policecomplaintonblockchain.in, that uses blockchain technology’s immutability so that complaints, once lodged, cannot be tampered with by either the police department or the complainant.

In an X (formerly Twitter) post, Ashish Tiwari, a senior superintendent of police (SSP) of Firozabad Police, said this was necessary for transparency.

जनपद में जनशिकायतों के त्वरित निस्तारण हेतु पायलट प्रोजेक्ट “पुलिस कम्पलेन्ट ऑन ब्लॉक चैन” को लॉन्च किये जाने के सम्बन्ध में वरिष्ठ पुलिस अधीक्षक फिरोजाबाद द्वारा दी गयी वीड़ियो बाइटः- 1/2 @Uppolice @adgzoneagra @igrangeagra @IpsAshish pic.twitter.com/kTBolZbfwV

— Firozabad Police (@firozabadpolice) October 10, 2022

At the same time, the Western Indian state of Maharashtra is reportedly using blockchain technology to store all the data of e-registration for newly constructed properties. The Maharashtra government has also started using blockchain technology to validate caste certificates to prevent fraud, as false caste certificates often lead to people losing jobs or education opportunities.

Likewise, the West Bengal New Town Kolkata Development Authority (NKDA) partnered with Airchains, a Web3 middleware SaaS platform, to digitize land ownership through a non-fungible token (NFT)-based mutation for management of land records. The blockchain model enables fractional property ownership.

“With the features of immutability, transparency, easy access, and accurate tracking, this system could revolutionize the land ownership industry and can become a prime example of blockchain technology’s potential in the real world,” said Ankur Rakhi Sinha, Co-founder and CEO of Airchains.

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 will be the biggest blockchain nation in 5 years, IPv6 Forum Latif Ladid says