March 27, 2024
India Explores Offline Solutions for CBDC Adoption
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India Explores Offline Solutions for CBDC Adoption

The Reserve Bank of India (RBI) is exploring offline solutions to promote the adoption of its central bank digital currency (CBDC), the digital rupee, especially in areas with limited internet access. Governor Shaktikanta Das revealed plans to evaluate various offline solutions, both proximity and non-proximity-based, in hilly, rural, and urban environments. During a review meeting of the Monetary Policy Committee on February 8, the RBI governor stated:

“It is proposed to introduce offline functionality in CBDC-R to enable transactions in areas with poor or limited internet connectivity. These functionalities will be slowly introduced through the pilots.”

Das emphasized that the CBDC system currently facilitates person-to-person (P2P) and person-to-merchant (P2M) transactions using digital rupee wallets provided by pilot banks. The move towards introducing offline capabilities was initially proposed in March 2023 by Ajay Kumar Choudhary, the RBI’s executive director.

At that time, the central bank expressed interest in testing the CBDC’s potential for cross-border transactions and integration with legacy systems in other countries. While the digital rupee undergoes testing for offline capabilities, existing payment platforms in India, notably the Unified Payments Interface (UPI), already offer offline possibilities. Siddharth Sogani, CEO of the Indian blockchain analytics firm Crebaco, noted that CBDCs primarily aim to enhance monetary monitoring and reduce reliance on physical cash in the financial system.

“We already have popular payment services with offline capabilities, especially UPI. The CBDCs align with the government’s vision to eliminate cash. Although CBDCs are an alternate solution, the primary purpose is to have a well-monitored monetary system.”

The RBI initiated a pilot of its retail CBDC in December 2022, achieving the target of one million daily transactions by December 2023. The motivation behind CBDC projects, whether in developing or advanced economies, commonly revolves around enhancing financial stability and cross-border payment efficiency. However, developing countries, including India, also aspire to boost financial inclusion through the implementation of CBDCs.

The governor’s announcement aligns with the broader global trend of central banks exploring digital currencies. As digital financial innovations continue to evolve, central banks are navigating the complexities of introducing CBDCs to modernize financial systems and meet the changing needs of their populations.

The RBI’s commitment to exploring offline solutions for the digital rupee reflects a strategic effort to extend the benefits of CBDCs to areas with limited internet access. As the world transitions towards digital currencies, the RBI’s initiatives contribute to the ongoing dialogue surrounding the adoption, functionality, and inclusivity of central bank digital currencies.

Image by starline on Freepik

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