India launched its CBDC with much fanfare on December 1st (1). But, early data suggests the e-rupee has not gained traction with consumers. Even worse, financial experts panned it as a needless bureaucratic hassle.
The digital rupee has been mostly ignored, according to reports from multiple Indian media outlets.
According to Hindu Business (2), there is "nothing to differentiate" it from "internet-based banking that users were already comfortable with."
First indications point to modest trade volumes, keeping banks bogged down with cash management paperwork. Cash is planned to be phased out in favor of Central Bank Digital Currencies (CBDCs).
Members of India's legislature Advocating for CBDC
For the sake of consumer safety and out of worry for their possible use in criminal activities like money laundering, Indian legislators have been trying to outlaw private cryptocurrencies since April of this year.
Due to the Supreme Court's decision that the ban violated the Constitution, the lower court's ruling was nullified.
Legislators enacted regressive taxation of 30% on profits from bitcoin trades and an additional 1% as Tax Deducted at Source (TDS) to counter this. As a result, local exchanges saw a steep drop in trade volumes.
Throughout this tale, Nirmala Sitharaman, India's finance minister, and the RBI have been staunch advocates for the digital rupee.
Sitharaman claimed (3) in March that a digital rupee would be useful for resolving monetary transactions on a global and national scale.
"We see clear advantages in a central bank driven digital currency. Today, bulk transfers occuring across- nations, huge transactions between institutions, and massive transactions between central banks themselves of each country are all better enabled with digital currency."
On December 1st, local media heavily covered the digital rupee pilot program launch.
There is little demand for the digital rupee
Reuters reported (4) that the digital rupee trial program had been live for an entire month, which directly contradicted the coverage in local media. Financial experts claimed the enterprise was doomed because of this period.
Simply put, the digital rupee doesn't provide any advantages over the current internet banking system for regular consumers. Bankers have also criticized the inefficiency of interbank settlements due to netting issues.
When asked how the digital rupee system works, a bank executive explained that each transaction must be settled independently. In contrast, traditional interbank transactions were conducted through bulk netting with a clearing house.
"The lack of netting is actually a huge downside, and there is no advantage over internet-based transactions."
Another top manager added that the low volume and adoption rate meant the existing infrastructure had to be maintained. The banks must bear more of a burden when both systems are active at the same time.
"Right now it is more inefficient because transaction volumes continue to be low on this, necessitating cash management in addition to managing electronic funds, which in turn necessitates additional paperwork and labor."
According to the reports, there is a lack of interest in CBDCs among Indians. An update on the eNaira CBDC experiment in Nigeria after a year revealed similar results.