The Reserve Bank of India launched its retail Central Bank Digital Currency (CBDC) pilot — the e₹-R — in December 2022 with four banks in four cities. By late 2024, it had expanded to 13 banks across most major urban centres. Now, roughly 18 months into the expanded pilot, we have enough data to assess what’s working, what isn’t, and what it means for the future of digital currency in India.

The headline numbers from the RBI’s digital currency updates suggest modest but growing traction: approximately 5 million retail wallets created, daily transaction counts averaging around 100,000-150,000, and a cumulative transaction value that remains a rounding error compared to UPI’s volumes.

But the interesting insights are in the details.

What’s Working

Programmable money features. The RBI has been quietly piloting programmability — the ability to attach conditions to digital currency. Government subsidy payments that can only be spent on specified categories (agricultural inputs, school fees) have been tested in limited deployments. This is arguably the most genuinely innovative aspect of e₹-R, and it addresses a real policy problem: ensuring that welfare payments reach their intended purpose.

Offline transactions. The pilot has tested near-field communication (NFC) based offline transactions, allowing e₹-R transfers between devices without an internet connection. In rural areas with spotty connectivity, this capability addresses one of UPI’s fundamental limitations. Early feedback from field trials suggests the technology works reliably for small-value transactions, though settlement reconciliation once devices come back online has been glitchy.

Settlement finality. Unlike UPI, where funds move through the banking system with settlement happening in batches, e₹-R transactions represent direct central bank money. This means no settlement risk, no intermediary failures, and no transaction reversals due to banking system issues. For merchants, settlement finality is a genuine advantage — when you receive e₹-R, you have it. Period.

What Isn’t Working

User motivation is absent. This is the fundamental problem. Indian consumers already have UPI, which is free, fast, and works everywhere. e₹-R offers the same basic functionality — scan, pay — with a smaller acceptance network and an unfamiliar interface. When you ask users why they’d choose e₹-R over UPI, most can’t articulate a reason.

The RBI has tried incentivising adoption through cashback offers and merchant rewards, but these are temporary measures. Without a permanent, structural advantage for end users, adoption will plateau once incentives stop.

Bank enthusiasm is lukewarm. For participating banks, e₹-R represents disintermediation. Every rupee held in an e₹-R wallet is a rupee not held as a bank deposit. At scale, this could drain deposits from the banking system, affecting banks’ lending capacity. Banks are participating because the RBI asked them to, but their promotional efforts are minimal.

In conversations with banking executives, the phrase I keep hearing is “strategic compliance” — doing enough to satisfy the regulator without actively pushing something that could cannibalise their core deposit franchise.

Merchant onboarding is slow. Despite 18 months of expanded pilot, merchant acceptance remains concentrated in chain retail and specific pilot locations. Small merchants — the chai wallahs, vegetable vendors, and kirana stores that UPI conquered — haven’t adopted e₹-R because they don’t see the point. Their customers aren’t asking for it, and existing UPI acceptance works fine.

The Privacy Question

One area where e₹-R could theoretically differentiate from UPI is privacy. The RBI has discussed “structured anonymity” — allowing small transactions to be anonymous (like cash) while maintaining audit trails for larger ones. This would address a genuine concern among privacy advocates who worry about the surveillance implications of a fully digital payment system.

In practice, the anonymity features remain limited in the pilot. Small transactions (below ₹500) can be conducted without full KYC, but the wallet creation process still requires basic identity verification. True cash-like anonymity hasn’t been implemented, and it’s unclear whether the RBI — or India’s security establishment — will ultimately allow it.

Comparisons With Other CBDC Pilots

India’s experience mirrors patterns seen in other CBDC pilots globally. China’s e-CNY, despite massive promotional spending and mandated usage at the Beijing Winter Olympics, has failed to gain organic traction against established platforms like Alipay and WeChat Pay. The Bank for International Settlements has documented similar struggles in trials across the Bahamas, Nigeria, and Jamaica.

The common thread is clear: CBDCs struggle to compete with existing digital payment infrastructure that already works well. Where CBDCs have shown promise is in markets with limited existing digital payment infrastructure — which, ironically, doesn’t describe India at all.

What Happens Next

The RBI has signalled that it intends to move from pilot to full launch, but hasn’t committed to a timeline. Given the adoption challenges, a rush to full deployment seems unlikely.

The more probable path is a gradual expansion of specific use cases where e₹-R has genuine advantages: government benefit disbursement (using programmability), rural offline payments, and cross-border settlements through bilateral CBDC arrangements with other central banks.

The grand vision of e₹-R replacing cash for everyday transactions looks increasingly unrealistic. Not because the technology doesn’t work — it does — but because UPI got there first and works well enough that most Indians don’t need an alternative.

The digital rupee’s future likely lies not in consumer payments but in wholesale applications, government disbursements, and cross-border settlement — areas where its unique properties as central bank money offer advantages that UPI structurally can’t match. That’s a narrower vision than the original pitch, but it might be the realistic one.