There have been numerous reports in Indian news channels on the lack of interest in the digital rupee.
According to The Hindu Business, it provides no distinction from "internet-based banking that users were already delighted with."
Low transaction volumes, as shown by early reports, force banks to keep administrative costs for cash. The purpose of Central Bank Digital Currencies (CBDCs) is to take the role of cash.
Indian Legislators Promote CBDC
Indian authorities have sought to outlaw private cryptocurrencies since April 2018, citing consumer protection and worries about their usage in illegal activities including money laundering.
The ban was declared unlawful by the Supreme Court, who then reversed the decision. In response, lawmakers implemented a 30% punitive tax on revenue from bitcoin transactions, with a further 1% as Tax Deducted at Source (TDS). As a result, local exchanges reported a major decline in trading volumes.
The Reserve Bank of India and Finance Minister Nirmala Sitharaman promoted the virtual rupee throughout this story.
Sitharaman asserted in March that a digital rupee would be useful for clearing both interbank and central bank transactions.
“We see clear advantages in a central bank driven digital currency, because in this day and age, bulk payments happening between- countries, large transactions between institutions and large transactions between central banks themselves of each country- are all better enabled with digital currency.”
On December 1st, the digital rupee pilot program went live to extensive local media coverage.
The Digital Rupee Doesn't Take Off
Reuters said that the digital rupee pilot program had been in operation for a month, contradicting local media. Bankers claimed the project had not taken off based on this time frame.
The main issue is that the digital rupee provides retail users with no advantages over the current internet banking system. Additionally, bankers criticized the inefficient netting of interbank settlements.
According to a banking executive, the digital rupee system functions by requiring that each transaction be cleared separately. The former interbank system, in contrast, functioned by bulk netting settlements with a clearing house.
“There is no advantage over internet-based transactions and the lack of netting is actually a big drawback.”
Another executive stated that maintaining outdated technology was necessary due to low volumes and limited acceptance. Combining the two systems adds to the burden on the banks.
“At the moment it is more inefficient, because the trade volumes continue to be low on this, which means we have to manage cash as well and it results in more paperwork and additional labour.”
According to the reports, Indians are not very interested in CBDCs. A one-year update on Nigeria's eNaira CBDC initiative revealed similar results.
The "huge failure" of the eNaira, according to geopolitical analyst Nick Giambruno, was a metaphor for the public's mistrust of the governing class.