Daybreak - Is India's e-rupee ready to be 'the currency of the future'?

Episode Date: October 22, 2023

It's going to be a year since the Reserve Bank of India launched its very own Central Bank Digital Currency or CBDC. In fact, just a few days ago, RBI governor Shaktikanta Das, who has been leading India’s transition into digital payments while speaking at an IMF event touted CBDC, popularly known as the e-rupee, as the currency of the future.Banks, and tech experts have said that it is an innovation that can drive financial inclusion, help digitise India’s economy, and simplify cross-border trade. After the launch, the RBI's aim was to hit 1 million retail CBDC transactions per day by December 2023.But now, just a little more than a month away from the deadline, CBDC is lagging far behind its goal with just 10,000–18,000 retail transactions a day.Is the e-rupee ready to be the currency of the future yet?Free ReadNo funds. No ads. Indian short-video creators face a new reality RecommendationCan India’s digital currency still be another UPI?Daybreak is produced from the newsroom of The Ken, India's first subscriber-only business news platform. Subscribe for more exclusive, deeply-reported, and analytical business stories

Hi, this is Rohan Dharma Kumar. If you've heard any of the Ken's podcasts, you've probably heard me, my interruptions, my analogies, and my contrarian takes on most topics. And you might rightly be wondering why am I interrupting this episode too. It's for a special announcement. For the last few months, I and Sita Raman Ganeshan, my colleague and the Ken's deputy editor, have been working on an ambitious new podcast. It's called Intermission.

We want to tell the secret sauce stories of India's greatest companies. Stories of how they were born, how they fought to survive, how they build their organizations and culture, how they manage to innovate and thrive over decades, and most importantly, how they're poised today. To do that, Sita and I have been reading books, poring over reports, going through financial statements, digging up archives, and talking to dozens of people. And if that wasn't enough, we also decided to throw in video into the mix. Yes, you heard that right. Intermission has also had to find its footing in the world of multi-camera shoots in professional studios, laborious editing, and extensive post-production.

Sita and I are still reeling from the intensity of our first studio recording. Intermission launches on March 23rd. To get an alert as soon as we release our first episode, please follow Intermission on Spotify and Apple Podcasts or subscribe to the Ken's YouTube channel. You can find all of the links at the ken.com slash I am. With that, back to your episode. Going to be a year since the Reserve Bank of India launched its very own central bank digital currency or CBDC.

Just a few days ago, actually, RBI Governor Shakti Kantadaz, who has been leading India's transition into digital payments were speaking about it at an IMF event. So now it's just about going to be a year of our one year of our CVDC pilot project. The learnings have been excellent and more than what it was one year ago, we are even more convinced that CVDC can prove

to be the most effective and efficient mode for cross-border payments in particular other than of course domestic transactions. CBDC is going to be the future currency of the world. Most people though prefer to call CBDC the E rupee. It is basically a legal tender from the Indian government just like regular money but in the digital form. So when it launched, the RBI made a big deal of it. It was meant to meet the public's need for digital currency.

Banks and tech experts said that it was an innovation that could drive financial inclusion, it would help digitize India's economy and simplify cross-border trade. And these things would, in turn, push us towards other goals like reducing India's dependence on the dollar in international trading and also reduce the threat of cryptocurrency, which, by the way, the RBI maintains is potentially dangerous in many ways. So with CBDC or the E-R-P, RBI's aim was to touch 1 million transactions per day by December 2023, which is just a little more than a month away. And it has been doing everything it can to hit that goal.

It is allowing E-R-P transactions even if a customer is offline. It is also linking the E-Rupi with UPI or the Unified Payments Interface, which, as we know, has seen wild success. But despite all these efforts, CBDC or the E-R-R-P is far, far behind its 1 million transactions goal. Currently, it is hovering at just 10 to 18,000 retail transactions a day. So, can the E-Rupe really contend with cash and also UPI? Welcome to Daybreak, a business podcast from the Ken. I'm your host, Nick Da Sharma, and I Don't Chase the News Cycle.

Instead, thrice a week on Mondays, Wednesdays, and for you. Fridays, I will come to you with one business story that is worth understanding and worth your time. Today is Monday, the 23rd of October. To begin with, let us try to understand how the E-Rupee is different from the money that you already have in your bank account that you can access digitally via UPI or net banking. The RBI says that the difference is huge. And that is because the E-R-R-P is a liability of the RBI and not of a commercial. bank. My colleague Praveen Gopalakrishnan explained this with a great example in an edition of his

weekly newsletter, The Nutgraph. So imagine you put your money into a bank account today. And I hope this never happens to you, but tomorrow you find out that the bank has gone out of business. You would lose your money, right? That money is yours, but there is nothing guaranteeing that all of it will always belong to you. You can keep your rupees in relatively safer places like a province. in fund account or in riskier places like crypto. But in all of these cases, the money is never entirely yours. It is a form of an obligation. And in that sense, the rupee in paper currency is also a form of obligation to you who is the

bearer from the central bank. You could say that it is the most secure form of an obligation. This is why your currency note is signed by the governor of the RBI, guaranteeing that the bearer will be paid the amount. Now, this specific form of rupee, which is the most secure one backed by the central bank, did not exist in the digital form. So if you wanted to take out all your cash and convert it electronically and have the same principles of guarantee apply to it, there was no way to do that.

But the e rupee or the CBDC changed that. Which is why the RBI says that CBDCs will have no liquidity risk, no credit risk, and no market risk. But the question that still remains is this. Why would someone hold their money in CBDC that earns no interest, unlike their money in bank accounts? Plus, what about the lack of anonymity? Let us delve a little deeper into that,

but before I do, my colleague Aksha has a message for you. Just off the top of your head, would you be able to name one Indian app that came up as an alternative to TikTok? Right, I had to look it up too. And there are so many. Chingari, Moj, Roposo, Josh, Trell, Bolo India, Mitroon, Bulbul. The list keeps going on. It's been more than three years since TikTok was banned in India,

and all these apps queued up to fill the white space in the market. In fact, many were actually built by former TikTok employees in India. In less than a year, apps like Moj, Roposo and Josh captured 97% of TikTok's user base. That's huge. For a brief moment, it felt like they had cracked the formula for success. But to everyone's surprise, things have started to take a turn. Cut to the present and as of today, they are losing advertisers, creators,

and the biggest asset of any social media app, users. investors. Investors too have left the chat. Remember the long list of apps I mentioned at the beginning? One of them got acquired, two of them merged into one, and many of them are struggling to stay afloat. What happened between then and now? Why did these apps see such a meteoric rise and an equally damaging fall? Are the real winners of TikTok banned giants like Instagram and Twitter and YouTube?

The answers lie in this story. by the Ken written by Sao Mjitzaha. He documented the boom and the bus cycle of these homegrown apps. If you're curious to know what went down, this story has been made available for free for exactly 24 hours. Just for today, the 23rd of October. So go ahead, give it a read, and share away with your friends before the counter runs out. I'm Akshya from the Ken's Newsroom.

Thank you for listening to us. If you like what we do, please rate and review us wherever you get your podcasts. And now, back to your host, Snigda. The thing with the E-Rupi is that there are still many unresolved doubts about the privacy of transactions. What I mean by that is that when you pay somebody by cash, the government or your bank has no record of that transaction, right? Nobody's keeping an eye on every transaction that you make. It is only when cash transactions are more than 50,000 rupees such as bank deposits or purchases, that customers are required to disclose their permanent account number.

or pan number. So, for example, I transfer money to you in the form of E rupees. Both you and I would get some kind of confirmation, right? That is a trail that can be traced. Even expert Anirud Zomani, a chartered accountant, wrote about this last year in Kaching, our weekly newsletter about all things fintech. He said, and I'm quoting, I'm highly skeptical whether the privacy quotient of CBDCs will be anywhere near cash. And that's simply because it is like programmable can. And that's cash, which means that CBDCs enable central banks to have direct insight into the identities of transacting parties and they can block or censor any transaction. End quote. But I was reading a report by the Economic Times and some bankers told the newspaper that the E-Rupee or CBDC supposedly gives

far greater anonymity because the transactions are not hitting your bank account. Supposedly, once you move the money to the wallet, they will not be reported. You will be able to transfer it to another wallet without going through the bank. But then, another banker said that while the transactions will be anonymous, they will always be traceable. And yes, no doubt India is adopting online payments or digital transactions, but we are still a cash-first economy. And even when you compare it to crypto,

no one is going to hold a significant amount of e-rupes in the hope for future. profit like crypto because e rupees are traceable and no one who seeks transaction anonymity would ever think of replacing private virtual currencies with digital rupees. So seeing the kind of success that upi has brought in RBI was probably hoping for the same for e rupee. But is that even possible with where things stand now? Stay tuned to find out. The thing is that there doesn't seem to be a solid incentive for people to use the E rupee over UPI. UPI is already widely used as a mode of digital payment. We are used to it.

It is already on our phones. We use it almost every day for non-cash transactions. Plus, it has minimum transaction costs. In fact, more than two-thirds of Indians now prefer using UPI during online checkouts. And most millennials, more than 80% actually, are now using UPI when they shop online. Also, with UPI, people are using the money that they keep in banks which earn them an interest. With the E-Rupee, that is not the case. And there might just be one more problem.

It is possible that the E-Rupe might make the banks unhappy simply by the way it is designed. You see, the E-Rupe, in the form that it exists now, kind of undermines the bank's lending power. because the idea is for it to be available when you want and you can transfer it with zero costs. There is no way for anyone to apply any transaction cost on it. Also, if you have E rupees in your wallet or in your phone, then the reasons for you to have a bank account go down. And that is what might affect how banks can lend. So basically with the way things are as of now, UPI and net banking and other digital payment methods, are working just fine for us.

And for the rest, we have cash. Daybreak is produced from the newsroom of the Ken, India's first subscriber-focused business news platform. What you're listening to is just a small sample of our subscriber-only offerings. A full subscription unlocks daily long-form feature stories, newsletters, subscriber-only apps, and podcast extras. Head to the Ken.com and click on the red subscribe button

on the top of the website. I am Snidda Sharma, your host. And today's episode was edited by my colleague Rajiv Sien.