Daybreak - Who’s using the e-rupee?

Episode Date: July 28, 2025

Globally, virtual currencies are back in the limelight. In India, UPI transactions hit record highs almost every month. Yet, the value of cash in circulation has gone up by Rs 2 lakh crore. Sure, the transaction value of the e-rupee, or the digital form of the fiat currency, has increased, but it’s driven more by banks doling out allowances to employees than any real market demand.But the reality is that the landscape of money’s partial substitutes in India, a digital-payments pioneer, shows little change to the status quo.Tune in. 🎓 Are you an Indian student in the US or recently graduated? Tell us what your journey’s been like: Take the surveyDaybreak 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 alert, as soon as we release our first video. 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. When it comes to digital payments, India seems to have cracked the code. In fact, this year in May, the number of UPI transactions hit a record of nearly 18.7 billion. Pretty impressive, And yet, here's the twist.

While for most of us, coming across an actual physical 500-rupee note has kind of become like spotting a Bengal tiger, the use of physical cash hasn't actually declined. In fact, data shows that cash in circulation has only grown since demonetization back in 2016. As of right now, there are over 155 billion notes in the economy, valued at nearly 37-lac-craw rupees. And because the RBI wants to ensure everyone has access to cash, banks have been loading ATMs with 100 and 200-ru-p notes.

So what then happens to the E-Rupe? That's the digital form of the fiat currency. While sure, the transaction value of it has increased yes, but that's driven more by banks rolling out allowances to employees than any real market demand. Meanwhile, the story playing out globally looks a little different. Just last month, lawmakers in the US passed the Genius Act. This is a landmark bill that creates a uniform regulatory framework for stablecoins.

These are a type of cryptocurrency, but unlike Bitcoin, their value is pegged to a fiat currency like the US dollar. And they're not niche anymore. In 2024 alone, stablecoins like US, USDT or Tether and USDC or Circle were used for transactions worth over $27 trillion. That's more than the combined volume of Visa and MasterCard transactions that year. With market capitalizations of $158 billion and $62 billion respectively, these tokens are not just digital currencies.

They're promising to make transactions faster and cheaper than traditional banking systems. Naturally, the world is sitting up and taking notice. In China, for instance, firms are reportedly lobbying the regulator to launch Wan-based stable coins. Even the RBI is feeling the pressure to reassess their policies towards these assets. Many crypto exchanges are said to be lobbying the government and the RBI to permit the launch of a rupee-backed stable coin. But here's the thing.

For all of India's success as a digital payments pioneer, the reality is that the land's cape of money's partial substitutes like the E. Rupee hasn't really shifted the status core. Welcome to Daybreak, a business podcast from the Ken. I'm your host Rahil Filippos and I don't chase the news cycle. Instead, every day of the week, my colleague Sigda Sharma and I will come to you with one business story that's worth understanding and worth your time. Today is Monday, the 28th of July. Best thing about UPI transactions is that they are easy to trace. For every transaction, There's a proof of purchase or a sales acknowledgement. And bonus, the dispute handling processes are pretty seamless and transparent.

Now, that makes the government's job way easier when it comes to collecting GSD. That means guaranteed and enhanced revenue for the foreseeable future. In fact, in FI25, the government managed to collect over 22 lakh crore rupees in GSD revenue. That's a near 10% increase since the previous year. Now, that's the upside of UPI. The downside is that it doesn't really help create credit. It simply provides the framework that enables interbank transfers. Don't get me wrong.

That's integral for the health of an economy. But what UPI can't help with is financial transformation. That's only possible through bank deposits. It's that and the widespread increase of credit flows that indicate enhanced financial inclusion. But currency-backed stable coins could shift that landscape. In some ways, it poses the same threat on account of which central banks were created in the first place. Fragmentation of money issuance. This form of money also claims to be more stable than other cryptocurrencies and promises a faster and chief per cross-border settlement process than regular bank transactions.

Currently, they fall outside of India's formal stack of money. But the fact of the matter is, they or in. any other form of virtual currency, are unlikely to unseat cash or bank deposits anytime soon. That's because central banks like the RBI need to ensure an adequate supply of the forms of money while meeting monetary policy goals like inflation targeting and currency depreciation. In this regard, the RBI's main liabilities, banknotes and commercial bank reserves, become the ultimate means of settlement for all transactions. Okay, quick break.

especially if you're listening to this from a dorm in Boston or a co-working space in San Jose. If you are an Indian student currently pursuing high education in the US, or if you've just graduated, we would love to hear from you. The Ken's new careers podcast, 90,000 hours, is working on a new episode about a question that's been weighing on a lot of minds lately. Was all of this worth it? The move, the money, the master's degree, what did it really buy you? And if you're thinking of coming back to India, how would you even begin to make that shift work?

We've put together a short anonymous survey to hear what this journey has been like for real, not the brochure version. So if this sounds like you or someone you know, please take our survey. Link is in the show notes and now back to the episode. It is the RBI's job to ensure that the cash is flowing, not just in general, but also for commercial banks. Now, demand for cash comes in a bunch of forms. One popular use case is real estate. An estimate suggested that up to 44% of all real estate transactions happen in cash even today. Sure, corporate entities are mostly paid through traceable bank transactions,

but untraceable cash payments also go through local politicians and other authorities, for instance. And then, of course, there are elections. The final days of any election cycle are all. all about cash distribution. Anything to tip the balance in favor of a candidate. Many politicians maintain clandestine cash accounting systems to efficiently service their constituencies and there have been instances of authorities seizing cash from their homes.

The bottom line is, while the government may try its best to dissuade the public from using cash, physical money isn't going anywhere. Banks have also realized that it's something they will need to constantly supply. Digitalization can also become expensive, especially when transaction fees and discount rates for debit cards and UPI transactions are low or non-existent. Banks currently earn 0.15 to 0.25% of UPI and debit card transactions on average. Maintenance and security are added expenses. The RBI also has promises to keep, one of which is to provide a tidy dividend to the government every single year.

For FY25, the central bank is expected to transfer nearly 2.7 lakh crore rupees to the government. That's about 27% more than it paid in FY24. Now, RBI gets a lot of its profits from foreign exchange, open market operations, and interest-bearing investments like domestic and international treasury bonds. But here's a lesser-known fact. A big chunk of the money that funds these innovations, like the E-R-P or even ATM infrastructure, comes from something called senior age. It's essentially the profit the central bank makes by printing money.

And the math is simple. Take the total value of notes in circulation, subtract the cost of printing and distributing them, and multiply that by the market interest rate. Because that's the return the RBI earns when it invests those funds. Essentially, printing more notes and creating more commercial bank reserves gives the RBI a chance to make more profits. And as such, cash is unlike.

to make an exit anytime soon. Today, most Indian banks are compelled to offer central bank digital currency or CBDC. But the thing is, most people think this isn't quite well thought through. The wholesale variant CBDCW was meant to facilitate a real-time and cost-effective international settlement system. But it doesn't take into account things like settlement fees, which are an integral part of bank earnings or existing digital reserves. Now, that explains why there have been very few.

takers. In FY25, no CBDCW was issued at all. Its retail variant, CVDCR, has managed to hang on though. Its value has been rising considerably. It crossed 1,016 crores as of March 2025, which is a 300% increase over the preceding year. This is largely because banks issued allowances in CBDC to tens of thousands of employees during the time. While many other central banks have shelved it, RBI is still promoting it. Consumers are confused by it, banks view it as an existential threat, and the government, well, it is indifferent to it. Basically, CBDC is kind of like a solution that is desperately looking for a problem to solve.

It's also unlikely that India will adopt stable coins anytime soon, and there are three big issues for the RBI to consider here. The first is the issue of settlement risk and foreign exchange conversion fees. So even if individuals and corporations were allowed to purchase and offload stable coins for cross-border commerce, say, to hedge against currency fluctuations and expedite settlement, the conversion fees and settlement risk are unavoidable. They will continue to attract the same charges, about 3 to 4% of the transaction amount, unless central banks mutually agree to compress conversion rates globally. In the unlikely event that it happens, the RBI would be better served using its own CBDCs to effect that change, as it could forego or minimize fees. Secondly, the RBI has no virtual currency-related policy today. Other regulators like the US Securities and Exchange Commission make no distinction between the US dollar-backed stable coins and other forms of cryptocurrencies.

They are classified as investments. That's a speculative asset most multinational companies would be low to, as well. this would artificially depress their stated cash holdings. So until stablecoins are made a real cash equivalent, they may not even take off. Finally, apart from the fact that regulating private stablecoins may prove to be an insurmountable regulatory headache, a constantly depreciating rupee may make the concept of a rupee-backed stable coin as a currency hedge illogical. It's also unlikely that the RBI will allow US dollar-backed stablecoin exchanges to operate in India. What's more likely is that it'll cling on to CBDCs more than ever

and perhaps look to marry indigenous stable coins to the fiat digital currency. That's if enabling such a payment vehicle becomes inevitable. 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 and podcast extras. Head to the ken.com and click on the red subscribe button on the top of the website.

Today's episode was hosted by Rahil Filippos and edited by Rajiv Sien.