How CBDC Works in Practice?

Here's a breakdown of how CBDC functions on the ground:

Token-based digital rupee

The Central Bank Digital Currency (CBDC), also known as the Digital Rupee or e₹, is a digital token representing the Indian Rupee and serves as legal tender, just like physical cash.

Each token is equivalent in value to a paper currency note or coin and is guaranteed by the Reserve Bank of India (RBI).

Distribution via banks and intermediaries

• The RBI issues the digital rupee and distributes it through participating banks and approved intermediaries.

• Users can access e₹ by downloading a digital wallet app provided by these banks. They can register and load their wallets with digital rupee tokens.

• Both retail (for the public) and wholesale (for financial institutions) versions are distributed through this channel.

Digital wallet

• The digital rupee is stored in a secure digital wallet. It functions similarly to holding cash in a physical wallet but in digital form.

• Users can make payments, transfer funds, or receive money using their e₹ wallet, with transactions happening 24/7.

• No minimum balance is required to maintain an e₹ wallet. It is typically linked to a user's savings account for easy onboarding.

Offline Functionality for Rural and Low-Connectivity Areas

• To make digital payments more accessible, the RBI is adding offline payment features to the e₹.

• This feature allows users to transact using the e₹ even in areas with poor or no internet connectivity. Thus, it gives an important advantage in rural or remote regions.

• Several offline methods like nearby (proximity) and remote (non-proximity) solutions are being tested to ensure smooth transactions even in areas with poor connectivity.

Why Was CBDC Introduced in India?

Here are some of the major reasons for introducing CBDC in India:

• Reduce dependency on physical cash: India spends around $600 million annually to print cash, with 14%. CBDC aims to reduce the cutting, printing, and cash-handling costs by making money digital and more efficient.

• Offer a regulated alternative to cryptocurrencies: While crypto assets are volatile and unregulated, CBDC ensures legal stability as it is backed by the RBI.

• Improve efficiency of cross-border and interbank payments: India received a record $129.4 billion in foreign remittances in 2024, according to RBI data and World Bank estimates. CBDC can reduce intermediaries, cut transaction times, and lower costs in these high-volume flows. This will make it easier to receive international payments in India. 

• Enable offline payments for remote areas: Offline functionality supports financial inclusion by enabling access for unbanked and underbanked users in rural areas and places with poor Internet connectivity.

• Support India’s digital-first economy vision: CBDC supports the initiative of a cash-light, transparent, and modern financial infrastructure in India.

Current State of CBDC in India (as of 2025)

Here's a quick look at how CBDC adoption is phasing out as of June 2025:

Pilot Projects Across Banks, Retail Users, and Wholesalers

The e-rupee has transitioned from early pilots to broader experimentation across both wholesale and retail segments. 

By March 2025, the e-rupee pilot had expanded to 17 major banks and reached 60 lakh (6 million) retail users, with the value of e₹-R (retail CBDC) in circulation crossing ₹1,016 crore, a tenfold jump from December 2023. 

In the wholesale segment, the CBDC continues to be used for interbank settlements, especially in secondary market transactions involving government securities.

Limited traction among consumers

Despite this expansion, consumer adoption remains modest. This is largely due to three key reasons:

• With UPI being free, fast, and familiar, there’s little incentive for average users to switch.

• Many still don’t fully understand what CBDC is or how a CBDC wallet works.

• Less than 0.003% of total notes in circulation are CBDC as of FY25, which highlights its nascent status.

Adoption may rise as offline capabilities and targeted use-cases like DBT become more mainstream, but for now, CBDC is still in early innings and many consumers still prefer familiar digital alternatives.

Stronger adoption in the interbank space

CBDC usage has seen better traction in the interbank and wholesale domains. It is leveraged for the efficient settlement of government securities and stock market transactions. 

The CBDC-Wholesale pilot has been expanded to include four standalone primary dealers to increase efficiency.

RBI’s gradual, cautious approach

RBI is following a measured rollout strategy that focuses on interoperability, robust security, and regulatory compliance. 

The retail pilot began with simple P2P and P2M transactions but now includes offline payments, programmable CBDC, and expanded distribution via non-bank payment operators since April 2024.

The programmability feature, which enables conditional payments based on expiry dates, location, or purpose, is gaining a lot of traction. For instance, Odisha’s Subhadra Yojana leverages e₹ for 88,000 beneficiaries, and DBT schemes, Kisan Credit Card (KCC) loans, and employee allowances are being piloted using programmable CBDC.

Impact of CBDC on Digital Payments in India

For businesses and retailers

• Faster settlements, including offline

CBDC enables instant settlement of transactions, even in offline mode. This is a huge benefit for merchants operating in unreliable connectivity areas.

• Lower transaction fees

CBDC transaction charges are often lower than those of cards or mobile wallets. This helps small businesses and retailers earn more revenue.

• Potential for seamless cross-border trade

CBDC could also facilitate faster, cheaper, and more transparent international payments. This would be a game-changer for businesses engaged in international trade. Still, widespread adoption will depend on multilateral agreements and technical integration.

For consumers

• Digital cash alternative

CBDC acts as a digital version of cash. It can be used without a traditional bank account, thus supporting financial inclusion in the country.

• Offline functionality

CBDC wallets can help people in rural and semi-urban populations get access to digital payments even with no Internet connectivity..

• Adoption challenges

Despite these advantages, consumer adoption remains slow because people are used to UPI and mobile wallets.  

For banks and fintechs

• New payment rails

CBDC introduces a new, highly efficient settlement infrastructure, reducing reconciliation times and operational risks for banks and fintechs.

Innovation drive

The emergence of CBDC is pushing banks and fintech companies to innovate in wallet design, user experience, and value-added services to stay competitive in the payments and fintech space.

• Regulatory clarity

CBDC has clear regulatory guidelines for handling digital currency. This enhances compliance and reduces ambiguity in digital asset management.

Challenges to Adoption

Despite the ongoing pilots and RBI initiatives, there are several hurdles that hinder widespread CBDC adoption in India.

• Awareness and education: Many users don’t know what CBDC is and how it differs from existing digital payment options, especially in rural and semi-urban areas.

• UPI’s dominance: UPI continues to offer seamless, free, and highly familiar digital payments. This leaves little incentive for users or merchants to use CBDC over UPI.

• Data privacy and cybersecurity: User concerns around data privacy and impact trust in CBDC.

• Digital infrastructure gaps: Digital infrastructure, particularly in remote regions, restricts CBDC’s reach and usability.

• Merchant integration and usability: Merchant acceptance is still limited, and wallet interfaces need further improvement for a better user experience..

What’s Next: The Road Ahead for CBDC in India

Here are several key factors impacting CBDC’s future in India:

1. Interoperability with UPI and digital wallets

The RBI is testing interoperability so that users can make both UPI and CBDC payments with the same QR code. 

With future upgrades, users might be able to easily switch between UPI and CBDC wallets, further driving adoption.

2. Expanding bank participation

CBDC pilot now has 17 major banks. With the RBI scaling up the project to cover broader demographics and geographies, it will soon have more partners.

This will improve access and encourage innovation in wallet features and merchant integration.

3. Cross-border CBDC collaboration

RBI is actively working with global central banks to test cross-border digital rupee use cases. Once CBDC is implemented for cross-border payments, it will make international trade settlements more effective and reduce dependency on the US dollar.

4. Targeted policy incentives

Policymakers are considering incentives for CBDC adoption in key sectors, such as export businesses, government payments, and offline transactions in rural zones. 

For example, public sector banks are piloting e-rupee payments for employee salaries and government subsidies, and programmable CBDC features are being tested for targeted disbursals.

Conclusion

CBDC isn’t here to replace UPI; it’s meant to augment the digital ecosystem and prepare India for a more resilient, faster, and programmable financial future. 

Backed by the RBI , designed for a cash-light economy, and already quietly powering interbank settlements and government disbursals, CBDC is a slow-burning revolution in motion.

While CBDC adoption will take time for international payments, if you're running an international business today, you don’t have to wait to receive payments smoothly. 

Platforms like Infinity can help you receive international payments easily. Infinity charges a flat 0.5% transaction fee with no FX markup and a 24-hour payment processing timeline.

If you are starting an international business and want to receive payments at low costs, sign up for Infinity!

FAQs on CBDC

1. What is CBDC?

CBDC stands for Central Bank Digital Currency. It’s a digital version of physical cash issued by the Reserve Bank of India (RBI).

2. Is CBDC the same as UPI or digital wallets like Paytm or Google Pay?

No. UPI and wallets are ways to move money from your bank account. CBDC is actual money issued by the RBI. It doesn’t need to go through a bank..

3. Will CBDC replace physical currency?

Not anytime soon. The aim of promoting CBDC is to complement physical cash and digital systems and not replace them entirely.

4. Can I use CBDC for international payments?

Not yet. CBDC for cross-border payments is still in the early research stage. For now, platforms like Infinity are better suited for receiving international payments.