The Reserve Bank of India (RBI) wants to boost its daily central bank digital currency (CBDC) transactions using the existing Universal Payments Interface (UPI) infrastructure. by its acronym in English) of the country, according to deputy governor T Rabi Sankar. UPI is India’s express payment system, combining instant settlements with retail POS QR codes for vendors. The link will allow the digital rupee to be used more easily at merchant outlets, according to the Times of India.

CBDC-UPI link

Since the launch of its e-rupee retail pilot in December 2022, India’s central bank has been looking for ways to increase adoption among its citizens. So far, 1.3 million users have downloaded the CBDC digital wallet, but daily transactions have recently reached 10,000, partly due to the limited number of merchants that accept digital payments in rupees. It was reported that there are 300,000 business establishments that accept the digital rupee, but in January there were only 5,000.

RBI Deputy Governor T Rabi Sankar now wants to increase the number of daily transactions to around 1 million by the end of the year by integrating with India’s national UPI infrastructure. The goal seems achievable, considering that UPI’s daily transactions currently exceed 300 million. However, the fast payment system could also hinder further user adoption in the same way that WeChat Pay and AliPay have done in China. Many people view retail CBDCs as competing with existing payment systems, rather than complementing them.

Nonetheless, the central bank is looking to take advantage of the platform’s QR codes to allow vendors that accept UPI payments to also accept digital rupees, reducing concerns about the number of onboarding merchants. Banks will make QR codes interoperable and link payments to CBDC wallets when available.

“Work is underway to ensure full interoperability by the end of the month, which will allow QR codes without linked CBDC accounts to redirect payments to bank accounts,” Sankar said. “The RBI also aims to encourage other banks to adopt interoperability.”

The Motivations of India’s CBDC

In addition to its domestic applications, India’s central bank has also been seeking cross-border uses to reduce frictions in international payments and foreign exchange markets. BIS’s Project Icebreaker has demonstrated the potential of retail CBDCs to address cost and time inefficiencies in cross-border transactions, and India recently announced a collaboration with the United Arab Emirates (UAE) to explore the use of CBDCs for commerce. cross-border. and remittances.

Another motivation for the digital rupee is the central bank’s desire to protect monetary sovereignty. The lieutenant governor previously took aim at cryptocurrencies, saying that the use of digital currency around the world should be restricted to fiat money. CBDCs can also help countries diversify beyond major reserve currencies, particularly the US dollar.