RBI to Implement UPI-CBDC Interoperability, Targeting 1 Million Daily Transactions

RBI to Implement UPI-CBDC Interoperability, Targeting 1 Million Daily Transactions
RBI to Implement UPI-CBDC Interoperability, Targeting 1 Million Daily Transactions

The Reserve Bank of India (RBI) is set to revolutionize digital transactions by implementing interoperability between its central bank digital currency (CBDC) and the Unified Payments Interface (UPI). As per Deputy Governor T. Rabi Sankar, customers will soon be able to utilize UPI QR codes for seamless transactions using the CBDC. The RBI’s ambitious goal is to achieve a staggering 1 million CBDC transactions per day by the end of this year, representing a significant surge compared to the current transaction volume.

The implementation of interoperability will allow customers to use a single QR code for both UPI and CBDC transactions, ensuring a convenient and user-friendly experience. Thirteen banks have already embraced this program, and the RBI intends to encourage the participation of more banks, aiming for a total of 20-25 banks in the initiative. By enabling interoperability, CBDC users will have the flexibility to make transactions even if the merchant does not possess a CBDC account. In such cases, the payment will seamlessly redirect to the merchant’s UPI account.

Presently, CBDC transactions through banks average between 5,000 and 10,000 per day. However, the RBI aims to scale up this volume exponentially, striving for an ambitious target of 1 million CBDC transactions per day by the conclusion of this calendar year. Considering that over 30 crore transactions are already taking place daily through UPI, achieving this target seems feasible and will significantly contribute to the widespread adoption of CBDC.

To ensure the effective implementation of CBDC, the RBI is actively addressing two significant challenges: anonymity and offline transactions. The preservation of user anonymity while upholding security and compliance remains a crucial aspect. Additionally, enabling offline transactions will empower users to seamlessly conduct transactions even in areas with limited internet connectivity.

CBDC transactions are expected to offer cost-effective solutions, particularly for cross-border payments. At present, cross-border transactions incur costs exceeding 6 percent, burdening individuals and businesses alike. Leveraging CBDC technology can substantially reduce these costs, providing a more affordable and efficient alternative. The RBI anticipates that CBDC will facilitate transactions among various banks, reducing reliance on a few institutions and fostering fair practices.

The successful pilot programs for retail and wholesale transactions utilizing CBDC have garnered significant traction. As of June 30, the retail pilot has attracted over one million users and facilitated transactions with 262,000 merchants. The RBI continues to actively encourage participation from banks and fintech firms to further drive transaction growth. The integration of UPI QR codes for CBDC transactions will serve as a catalyst for this remarkable expansion.

Deputy Governor T. Rabi Sankar expressed India’s concerns about stable coins, underscoring their potential as an “existential threat” to countries’ policy sovereignty. Sankar emphasized the importance of a global financial system built on CBDCs issued by individual countries for settling global payments, rather than relying on stable coins. He urged bankers and fintech firms to engage in informed debates to protect customers from misleading advertisements and ensure the adoption of secure and regulated digital currencies.