BharatNotes What is Central Bank Digital Currency (CBDC)?
A Central Bank Digital Currency (CBDC) is the sovereign currency of a country issued in digital form by its central bank. It is legal tender, denominated in the national currency at par with physical cash, and appears on the central bank's balance sheet as a direct liability. In India it is branded the Digital Rupee (e₹) and is issued by the Reserve Bank of India (RBI).
Crucially, a CBDC is not a cryptocurrency. Private cryptocurrencies are decentralised, privately issued and speculative; a CBDC is centrally issued, fully sovereign-backed and stable in value, functioning as a digital twin of cash.
Legal Basis and Types
The Finance Act, 2022 amended the definition of "bank note" in the RBI Act, 1934 to include currency issued in digital form, which — read with Section 22 of that Act (RBI's note-issuing monopoly) — empowers the RBI to issue the Digital Rupee as legal tender.
The RBI's CBDC has two variants:
| Type | Form | Primary use |
|---|---|---|
| Wholesale (e₹-W) | Restricted to financial institutions | Interbank settlement, e.g. settlement of secondary-market government-securities transactions |
| Retail (e₹-R) | For the general public, businesses | Person-to-person and person-to-merchant payments via wallet |
Current Status (as of RBI Annual Report 2024-25)
- The wholesale pilot (e₹-W) began on 1 November 2022; the retail pilot (e₹-R) on 1 December 2022, starting in Mumbai, New Delhi, Bengaluru and Bhubaneswar.
- The retail pilot expanded to 17 banks and about 6 million (60 lakh) users (RBI Annual Report 2024-25).
- e₹ in circulation rose to ₹1,016 crore by end-March 2025, up from ₹234 crore a year earlier — a rise of roughly 334% during 2024-25 (RBI Annual Report 2024-25).
- New capabilities piloted include offline payments (transactions without internet, useful in poor-connectivity areas) and programmability (e₹ programmed for specific end-uses, e.g. restricting an allowance to designated merchants).
- The RBI has begun allowing certain non-bank entities to offer CBDC wallets, and is exploring cross-border payment use cases.
Significance and Concerns
CBDCs can reduce cash-handling costs, deepen financial inclusion, enable faster settlement, and offer a sovereign alternative to private digital currencies. Programmability could make welfare-transfer leakage harder. However, concerns include bank disintermediation (deposits shifting into CBDC), data privacy and surveillance, cyber-security risk, and offline-mode integrity. Consistent with these risks, the RBI has stressed a cautious, calibrated rollout — adoption remains a tiny fraction of banknotes in circulation, and there is no fixed nationwide launch date.
UPSC Angle
A high-probability economy topic linking monetary policy, payment systems and fintech. For Prelims, focus on the legal basis (Finance Act, 2022 amending the RBI Act, 1934), the wholesale/retail distinction, and CBDC-versus-crypto differences. For Mains GS3, frame around financial inclusion, monetary transmission, disintermediation and cross-border payments. Foundation concept — no verified direct PYQ; underpins questions on monetary policy, digital payments and fintech.
