In the unfolding narrative of digital economies worldwide, Central Bank Digital Currencies (CBDCs) are emerging as significant game-changers, redefining the contours of global economic structures. Within this evolving matrix, India has been making impressive strides, pioneering innovations in the digital currency realm, thus underlining its commitment to navigating the future of financial landscapes. This comprehensive exploration delves deep into India's digital currency trajectory, scrutinizes its advances, and considers the possible implications for both its economy and the broader global financial arena.

The Genesis of the Digital Rupee and Its Transformational Impact

India's journey into the realm of CBDCs took a decisive leap with the Reserve Bank of India (RBI) pioneering the country's first-ever Digital Rupee. Initially launched in the Wholesale segment (e?-W) on November 1, 2022, the RBI followed this with the inaugural pilot for retail Digital Rupee (e?-R) on December 1, 2022. These marked a critical phase in India's financial history, establishing a new era of digital currency distinct from existing private virtual currencies.

The unique appeal of the CBDCs instituted by the RBI resides in their duality—they offer the advantages of virtual currencies while concurrently ensuring robust consumer protection. They serve to counteract the potentially deleterious socio-economic impacts typically associated with private cryptocurrencies.

The Dual Structure of the Digital Rupee

The Digital Rupee is bifurcated into Retail and Wholesale variants, each designed with specific audiences in mind. The Retail Digital Rupee (e?-R) caters to a broad spectrum, encompassing the private sector, non-financial consumers, and businesses, whereas the Wholesale Digital Rupee (e?-W) is purpose-built for selected financial institutions.

The e?-R pilot operates within a select demographic, comprising of participating customers and merchants, forming a Closed User Group (CUG). It enables seamless transactions through a digital wallet backed by participating banks and stored on mobile devices. This capability paves the way for both Person to Person (P2P) and Person to Merchant (P2M) transactions, further boosting digital payments' reach and convenience.

The Integration of FinTech in India's Digital Payments Landscape

One of the cornerstones of India's digital payments infrastructure has been the integration of non-bank FinTech firms. The RBI has made significant strides in facilitating these firms as Prepaid Payment Instrument (PPI) issuers, Bharat Bill Payment Operating Units (BBPOUs), and third-party application providers in the Unified Payments Interface (UPI) platform. This inclusive approach has resulted in a wider reach and increased adoption of digital payments across the country.

The G-20 TechSprint 2023 and India's Role

In the global effort to enhance cross-border payments, India has been a proactive participant. The G20 TechSprint 2023, jointly launched under India's G20 Presidency by the RBI and the BIS Innovation Hub (BISIH) of the Bank for International Settlements, marks a significant milestone in this endeavor. This global competition is designed to stimulate innovative solutions to improve the efficiency and security of cross-border payments.

The focus of the TechSprint 2023 revolves around three central problem areas: implementing technology solutions to curtail illicit finance risk, facilitating settlements in emerging market and developing economy (EMDE) currencies, and promoting multilateral cross-border CBDC platforms.

RBI's Ambitious Agenda for Digitization

In line with the commitment to promote digitization in the financial sector, the RBI has outlined an ambitious agenda for 2023-24. It includes conducting additional pilots with various use cases in both CBDC-Retail and CBDC-Wholesale.

The Digital Rupee - Wholesale Segment (e?-W) pilot, launched on November 1, 2022, has showcased its potential to streamline the inter-bank market and reduce transaction costs. Meanwhile, the Retail Digital Rupee (e?-R) pilot, announced on December 1, 2022, offers a promising alternative to physical cash, embodying trust, safety, and finality in digital transactions.

The RBI is working towards expanding these pilots to more locations, including more participating banks, users, and locations. The results from both the pilots thus far have been satisfactory, offering a promising outlook for India's digital financial landscape.

The Evolving Future of CBDCs

As India navigates its path in the CBDC arena, the focus will be on balancing the revolutionary potential of digital currencies with necessary risk mitigation strategies. It is an opportunity to reimagine traditional financial systems and redefine the nature of money. The key lies in achieving a global consensus on CBDC design, regulation, and implementation to harness the full potential of this innovative technology and ensure an equitable distribution of its benefits.



All new technologies come with inherent risks that must be carefully evaluated and managed. This is especially true for technologies with the potential to disrupt existing systems and processes, such as central bank digital currencies (CBDCs).

The risks associated with CBDCs can be diverse and complex, ranging from technical vulnerabilities to economic and financial stability implications. One of the key risks of CBDCs is the potential for governments to be fully aware of the transactions carried out by their citizens, which could have dire consequences for an economy. This level of government surveillance could have negative impacts on privacy rights, economic freedom, and the overall functioning of the monetary and financial system.

It is important that these risks be thoroughly explored in order to understand their full implications and identify effective risk mitigation strategies. This process of risk exploration and management involves learning about the technology and its potential impacts, as well as consulting with stakeholders and experts to gather diverse perspectives and insights.

By taking a proactive and thorough approach to risk management, it is possible to minimize the negative consequences of new technologies and maximize their potential benefits.

Design Element


Risk Mitigation Strategies

Wholesale vs Retail

Implications for the stability of the financial system and the role of commercial banks.

- Limits on the amount of CBDC that can be held by individual users

- Mechanisms to ensure that commercial banks can continue to perform their traditional intermediation functions.

Direct vs Indirect vs Hybrid

- Solvency risks for commercial banks

- Minimum reserve requirements

- Other prudential regulations

Token-based vs Account-based

- Losses due to digital tokens being lost or stolen

- Insurance or compensation schemes

Underlying technology

- Technical failures or vulnerabilities

- Robust testing and risk management processes

Instrument design

- Unintended consequences or negative impacts on the wider economy

- Careful consideration of economic, legal, and regulatory implications

- Consultation with relevant stakeholders

Degree of anonymity

- Facilitation of illegal activities such as money laundering and terrorist financing

- Know Your Customer (KYC) requirements

- Other forms of identification

CBDC : Should a law abiding citizen be concerned for their privacy?

Every stakeholder in the CBDC ecosystem will have different priorities when it comes to analysing the risks and benefits of this new technology. Banks for one, may see CBDCs as a risk to their entire business model, perfected over centuries. Private citizens on the other hand, may be more concerned about the privacy related risks that are inherent in CBDCs.

The reason a lay citizen of this country may be concerned with a new money system, which they have not opted for, nor had an opportunity to discuss or understand, is that how citizens spend their money is a fundamental aspect of their privacy and personal autonomy. It is an issue of voting with one's wallet (physical or digital), and has the power to shape the economy and the society in which we live. Therefore, it is important that the privacy rights of citizens be respected and protected when it comes to the use of CBDCs by central banks.

By ensuring that the risks to privacy are carefully evaluated and managed, we can preserve the freedom and autonomy of individuals to make their own economic decisions, without fear of censorship or (delayed) reprisals.

To be fair, the RBI has considered this risk, and in its concept note, it has specified that for small transactions, the details of the transactions shall remain anonymous. This is analogous to cash transactions, which too are anonymous. But if the amount in the transaction crosses a certain threshold, the same shall be recorded in the ledger of the commercial bank or the central bank, as the case may be. However, the exact mode and mechanism for ensuring such anonymity remains unclear, and without more details on how this mechanism will ensure privacy, this aspect of CBDCs will remain the thorn in an otherwise well-placed foot.

Fear the Panopticon

The panopticon, as imagined by Jeremy Bentham, was a prison design in which a central observation tower was surrounded by a circular arrangement of cells. The design was intended to allow the guards in the observation tower to always have sight of all the cells, while the prisoners were unable to see the guards and therefore did not know when they were being watched. The concept of the panopticon has been widely discussed in social and political theory and has been seen as a metaphor for the ways in which systems of power and control can operate in society.

In terms of privacy concerns related to central bank digital currencies (CBDCs), the panopticon can be seen as a metaphor for the ways in which the use of CBDCs could enable governments or other authorities to have visibility into the financial transactions of their citizens, while the citizens may not be aware who is being watch, why and when. Introducing legal safeguard to ensure privacy thus becomes pivotal.

If CBDCs were implemented in a way that allowed for extensive surveillance and tracking of financial activity, it could potentially have negative implications for privacy rights and personal autonomy. Moreover, the awareness of being constantly monitored may lead to a change in the behaviour of citizens, who may become more hesitant to engage in certain financial transactions out of fear of being monitored or judged.

The chilling impact of a Panopticon like apparatus was also touched upon by the Hon'ble Apex Court of India in its judgment passed in Justice K. S. Puttaswamy (Retd.) and Anr. v. Union of India and Ors.1 In this judgment, Justice D. Y. Chandrachud alluded to the aforesaid Panopticon-effect dealing with the concept of 'veillant panoptic assemblage' in relation to the right of privacy.

Recently, the draft of the Digital Personal Data Protection Bill, 2022 was released. Ideally, there should have been safeguards which prevented a 'data fiduciary' (in our case, the government) or 'data processor' from collecting data pertaining to the resource allocation habits of the citizens. But under Section 18(2)(a) of the said impending legislation, the Central Government has been given the power to exempt any State instrumentality (such as the RBI) from being subjected to the provisions of the bill. The reasons of exemption which have been provided are: "... interests of sovereignty and integrity of India, security of the State, friendly relations with foreign States, maintenance of public order or preventing incitement to any cognizable offence relating to any of these".

The consequences of exercising such exemptions will only be evident in due course of time.

In a best-case scenario, the data privacy and protection regime of India should function so as to ensure transparency in the actions of the powerful (the government) and privacy for the actions of the weak (citizens).

A few ways in which transparency can be injected in the CBDC project are as follows: -

  • Nodes could be made Public: If the CBDC is indeed based upon the blockchain-system, there will always be nodes which keep a copy of the entire ledger. Making these nodes public will ensure transparency in the activities of the government.
  • Anonymous Wallet Addresses: All the users and wallet addresses can be anonymized by default. This will ensures that the privacy is maintained as far as the citizens are concerned. Checks and balances can be placed on any governmental agency who seeks to de-anonymize any wallet data.

Although the concept note provides that the RBI shall maintain the ledger for the retail transactions, there is no mention of the entity collecting, storing and/or processing the humongous volumes of data generated in CBDC transactions. The national security and policy implications of processing such data is also a concern, which ought to be subjected to debate.



CBDCs are a big leap forward in the story of money, and payment systems. As per the Bank of International Settlements ("BIS"), which has been at the forefront of upstreaming CBDC, CBDCs "are a form of digital money, denominated in the national unit of account, which is a direct liability of the central bank". This stands in stark contrast to e-money, which is a liability of the retail banks and platforms.

BIS, an international organization that serves as a bank for central banks, was the natural organization to take the lead on the design and adoption of CBDCs, not least because CBDCs they have the potential to affect the functioning of the international monetary and financial system.

As noted above, CBDCs are digital versions of fiat currencies issued and backed by central banks, and they have the potential to change the way that money is created, distributed, and used.

To provide analysis and insights on this topic, the BIS published several reports on CBDCs, in which it has discussed the potential benefits and risks of CBDCs, as well as the technical and operational challenges that central banks may face in issuing and managing them. Other organizations that have published papers on CBDCs include the International Monetary Fund (IMF), the World Bank, and the Financial Stability Oversight Council (FSOC).

In these reports, BIS has discussed the various design elements that central banks must consider when issuing CBDCs. These design elements can be summarized as under:

  1. Wholesale vs Retail: The distribution and intended use of the CBDC. A wholesale CBDC would be used primarily for large-value transactions between financial institutions, such as interbank settlements. On the other hand, a retail CBDC would be available for use by the general public for everyday transactions.
  2. Direct vs Indirect vs Hybrid: The relationship between the CBDC and the underlying fiat currency. A direct CBDC would be issued and backed directly by the central bank, while an indirect CBDC would be issued by commercial banks and backed by the central bank. A hybrid CBDC would be a combination of the two.
  3. Token-based vs Account-based: The way in which the CBDC is recorded and transferred. A token-based CBDC uses a digital token to represent the currency, while an account-based CBDC uses a digital ledger to record transactions.
  4. Underlying technology: The technological platform used to issue and manage the CBDC. Some central banks are considering using distributed ledger technology (DLT) or blockchain for their CBDCs, while others are exploring other options.
  5. Instrument design: The specific features and characteristics of the CBDC, such as its denomination, issuance and redemption process, and any other relevant features.
  6. Degree of anonymity: The extent to which the CBDC can be used anonymously or pseudonymously. Some central banks may allow for some degree of anonymity to protect user privacy, while others may require full identification to comply with anti-money laundering and terrorist financing regulations.

In its reports, the BIS has emphasized the importance of central banks carefully considering these design elements and weighing the potential benefits and risks of each option. The BIS has also called for international cooperation to ensure that the development and use of CBDCs align with the broader goals of the international monetary system.

In the table below, we list some of the contemporary CBDCs which are either under discussion or have already been implemented. This will help the reader understand how the different jurisdictions are viewing recommendations of the BIS.

Country cbdc

Design features

BIS CBDC2 (Recommen -dations)

India –Digital Rupee (e-?)

China – DCEP (e-cny)

United States CBDC3

european union – digital euro4

Type (retail or wholesale)



Small-value Retail transactions6

N/A (Concept note indicates implementation of both)


model (direct / indirect / hybrid)

Indirect recommended (Prevents financial stability risks)



Indirect (Intermediated)

N/A (Possibly indirect. Because payments may be verified through intermediaries)

form (token / account)

Token-like attributes recommended to avoid disintermediation.

Token-based for Retail; Account-based for Wholesale

Both (Quasi-account-based)9


Possibly both10

technology choice

Centralised Ledger

Blockchain Based

Centralised operation (i.e., non-DLT)



instrument design

Interest-bearing + Limit on holdings

Non-interest Bearing




Degree of anonymity

Support for Public Privacy + Requirement for AML/CFT compliance

Only for smaller amount transactions

Controllable Anonymity12

Privacy-protected (Identity verification to deter criminal activity)

Focus on Privacy; ECB shall not process data collected for commercial purposes. But may use it for investigation & compliance purposes.

As CBDC adoption grows, the design and implementation of such CBDCs require careful consideration of several design elements, as outlined by the Bank of International Settlements and other international organizations. CBDCs have the potential to revolutionize the way money is created, distributed, and used, and as such, they have significant implications for the functioning of the international monetary and financial system. The BIS has emphasized the importance of central banks weighing the potential benefits and risks of each design option and has called for international cooperation to ensure that the development and use of CBDCs align with the broader goals of the international monetary system. As different jurisdictions consider the implementation of CBDCs, it is important to learn from the design decisions made by other countries and to carefully evaluate the potential impact of each option on the economy and society as a whole.


1. (2017) 10 SCC

2. https://www.bis.org/publ/othp33.pdf

3. https://www.federalreserve.gov/publications/files/money-and-payments-20220120.pdf

4. https://www.dnb.nl/media/espadbvb/central-bank-digital-currency.pdf

5. https://www.bis.org/publ/arpdf/ar2021e3.htm

6. https://www.forbes.com/sites/vipinbharathan/2021/07/19/e-cny-progress-report-reveals-telling-details-about-the-chinese-retail-cbdc-project/?sh=6f25b6d36a59

7. https://www.ledgerinsights.com/ecb-wholesale-cbdc-digital-euro/

8. https://www.china-briefing.com/news/china-launches-digital-yuan-app-what-you-need-to-know/

9. Supra Note 6

10. See Page-35 here: https://www.ecb.europa.eu/pub/pdf/other/Report_on_a_digital_euro~4d7268b458.en.pdf

11. https://www.ecb.europa.eu/paym/digital_euro/faqs/html/ecb.faq_digital_euro.en.html

12. https://www.technologyreview.com/2019/11/13/238350/china-says-its-digital-currency-will-have-controllable-anonymitybut-who-will-control-it/

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.