India’s central bank digital currency—the e-rupee—was supposed to revolutionize digital payments. Launched in pilot form in late 2022, it’s now been operational for over two years. The question everyone’s asking: is it actually succeeding?

The answer is complicated. The technology works. Adoption is growing but slower than hoped. The use cases are still being figured out. And the bigger strategic questions—why do we need a CBDC when we already have UPI?—remain unresolved.

What the E-Rupee Actually Is

The e-rupee is digital cash issued directly by the Reserve Bank of India. Unlike UPI, which moves money between bank accounts, e-rupee is a token that represents value. You hold it directly, not as a claim on a bank account.

Think of it like having physical rupee notes in your digital wallet, except they’re cryptographically secured digital tokens instead of paper. You can transfer them directly to others without going through a bank intermediary.

This matters for programmability, offline functionality, and potentially for monetary policy control. At least, that’s the theory.

The Pilot Results: Adoption

The pilot started with retail use in select cities and wholesale use between banks. As of early 2026, millions of users have e-rupee wallets, and thousands of merchants accept it.

But here’s the context: UPI processes billions of transactions monthly. E-rupee, even after two years, is a tiny fraction of that. Most people who have e-rupee wallets rarely use them. Merchants accept it, but few customers actually pay with it.

RBI pilot data shows steady growth in registered users, but transaction volume per user is low. People are trying e-rupee, but not adopting it as their primary payment method.

The UPI Competition Problem

India already has near-instant, free digital payments through UPI. It’s ubiquitous, easy to use, and works everywhere. For most payment scenarios, UPI is functionally equivalent to what e-rupee offers.

So why would someone use e-rupee instead? The common answers—offline capability, programmability, reduced intermediation—don’t resonate with average users who just want to pay for things quickly and easily. UPI already does that.

The RBI’s challenge is articulating a compelling value proposition for e-rupee that justifies asking millions of people to adopt a new system when they already have one that works perfectly well.

Offline Functionality: The Real Advantage?

The most frequently cited advantage of e-rupee is offline capability. You can transfer e-rupee tokens even without internet connectivity, using NFC or similar technologies. This matters in areas with poor network coverage.

In practice, this feature exists but isn’t widely used. Most transactions still happen online. The offline capability requires specific hardware support on both the payer’s and recipient’s devices, which limits adoption.

But in rural India and remote areas, this could be genuinely useful. The pilot has included rural regions specifically to test this use case. Results so far suggest potential, but scaling it requires addressing hardware and awareness challenges.

Programmable Money

E-rupee tokens can have programmable conditions attached. A government subsidy could be issued as e-rupee tokens that can only be spent on food or healthcare. A loan disbursement could be programmed to only work for the specified purchase.

This has attracted attention from policymakers interested in targeted welfare programs. Instead of transferring money to bank accounts and hoping it’s used as intended, you can embed restrictions directly into the currency.

But this also raises significant concerns about financial surveillance and control. Programmable money means the issuer can monitor and restrict how you spend. For a central bank, this level of control is both powerful and potentially concerning from a civil liberties perspective.

The pilot has explored some programmable use cases, particularly for government disbursements, but carefully to avoid backlash about over-control.

Wholesale vs. Retail

The e-rupee pilot has two tracks: retail (consumers and businesses) and wholesale (banks and financial institutions settling transactions between themselves).

The wholesale side has actually been more successful. Banks settling interbank transactions with digital central bank money creates efficiency and reduces settlement risk. This use case makes intuitive sense and doesn’t require mass adoption.

Retail adoption is harder because it requires changing consumer behavior at scale. The wholesale pilot demonstrates that CBDC technology works for its intended purpose. Retail adoption is more about finding compelling use cases.

Privacy Concerns

One of the biggest concerns about CBDCs globally is privacy. If every transaction goes through the central bank, does that mean the RBI can monitor all spending? That’s a level of financial surveillance that doesn’t exist with cash or even current digital payments.

The RBI has tried to address this by implementing different levels of e-rupee wallets with different privacy settings. Small-value wallets require minimal identification. Larger wallets require more KYC but also enable larger transactions.

This tiered approach balances privacy with anti-money laundering requirements. But skepticism remains, particularly among users concerned about government surveillance.

Cross-Border Potential

One area where e-rupee could genuinely add value is cross-border payments. Current international money transfers are slow and expensive, going through multiple intermediaries.

Direct CBDC-to-CBDC transfers between countries could be faster and cheaper. India has explored this with other countries developing CBDCs, particularly in Asia and the Middle East.

If e-rupee becomes a standard for international remittances—a huge use case for India given the Indian diaspora—that could drive adoption in ways domestic use cases haven’t.

Government Disbursements

The pilot has included using e-rupee for government welfare payments and subsidies. Instead of transferring money to bank accounts, beneficiaries receive e-rupee tokens directly.

This potentially reduces intermediation costs and speeds up disbursement. It also enables programmable restrictions (tokens only valid for certain purchases) and better tracking of how funds are used.

Results so far show this works technically, but requires beneficiaries to have e-rupee wallets and understand how to use them. In rural areas with lower digital literacy, this creates adoption barriers.

The Financial Inclusion Question

Proponents argue that e-rupee can improve financial inclusion by giving people access to central bank money without needing a bank account. This matters in areas where banking infrastructure is limited.

But skeptics point out that if someone doesn’t have a bank account, they probably also don’t have a smartphone with an e-rupee wallet app. And if they do have a smartphone, they could probably get a bank account or use UPI.

The financial inclusion case for e-rupee is stronger in scenarios where bank accounts are difficult to obtain or maintain (minimum balance requirements, documentation barriers) but smartphone access exists. That’s a narrower use case than sometimes claimed.

Bank Disintermediation Risk

Banks are watching e-rupee carefully because it could reduce their role in the payment system. If people hold significant amounts of e-rupee instead of bank deposits, that reduces the funds banks have available for lending.

This is called disintermediation, and it’s a genuine concern. Central banks globally have struggled with how to implement CBDCs without undermining commercial banks’ business models.

The RBI has addressed this by putting limits on how much e-rupee individuals can hold and by ensuring that e-rupee wallets are still primarily accessed through banks or licensed intermediaries. This maintains banks’ role while introducing the CBDC.

Technology Performance

On the technical side, the e-rupee pilot has performed reasonably well. Transaction speeds are good, the system has been stable, and security hasn’t been compromised.

The underlying technology—based on distributed ledger concepts but not a public blockchain—handles the transaction volumes required. Scalability testing has shown it can handle growth beyond current pilot levels.

So the technology isn’t the bottleneck. The challenges are around adoption, use cases, and integration with existing payment infrastructure.

What Merchants Think

Merchants participating in the pilot have mixed views. The technical integration is relatively straightforward if they already accept digital payments. But adding another payment method when UPI already works doesn’t necessarily help them.

Some merchants report that customers occasionally use e-rupee, often out of curiosity rather than preference. Few merchants report significant e-rupee transaction volumes.

For merchant adoption to increase, there would need to be either customer demand (which is currently limited) or specific advantages for merchants (lower transaction costs, faster settlement, etc.). So far, these advantages haven’t been compelling enough to drive meaningful adoption.

International Comparisons

India’s e-rupee pilot is one of several CBDC initiatives globally. China’s digital yuan is much further along in adoption. The Bahamas’ Sand Dollar is fully operational. Many other countries are in pilot phases.

Compared to these, India’s pilot is proceeding cautiously. The RBI seems to be prioritizing learning and careful expansion over rapid adoption. This conservative approach reduces risk but also means slower progress.

What’s Next

The pilot is expected to continue expanding geographically and increasing use cases. The RBI has indicated that full-scale launch will depend on pilot results and addressing outstanding questions about adoption and use cases.

Key areas for expansion:

Rural focus: Increasing pilot activities in rural and semi-urban areas to test financial inclusion and offline payment use cases.

Cross-border: Expanding international CBDC cooperation for remittances and trade settlement.

Programmable use cases: More experimentation with conditional tokens for targeted government programs.

Integration: Better integration with existing payment systems so e-rupee feels like a natural part of the digital payment ecosystem rather than a separate thing.

The Strategic Question

The fundamental question remains: what is e-rupee for? If it’s just another digital payment method alongside UPI, cards, and mobile wallets, it’s hard to justify the investment and effort.

The RBI needs to clearly articulate strategic goals that e-rupee uniquely enables. This might be offline payments, cross-border efficiency, programmable money for policy purposes, or reduced dependence on private payment infrastructure.

Without that clarity, e-rupee risks becoming a technology looking for a problem to solve, rather than a solution to clearly identified needs.

The Verdict

Two years into the pilot, the e-rupee has proven that CBDC technology works in the Indian context. What hasn’t been proven is that there’s sufficient demand for it to justify displacing or supplementing UPI.

The next phase will likely focus on finding specific niches where e-rupee provides clear advantages—rural offline payments, cross-border transfers, targeted welfare—rather than trying to be a general-purpose replacement for existing digital payments.

Whether that’s enough to make e-rupee a meaningful part of India’s digital payment ecosystem, or whether it remains a niche product, will depend on how effectively the RBI can identify and serve those specific use cases. The technology is ready. The strategy is still being figured out.