India’s CBDC moment: From digital cash to programmable money

This is a thought leadership report issued by the S&P Global Institute. This report does not constitute a rating action, neither was it discussed by a rating committee.

Highlights

India's central bank digital currency (CBDC), the digital rupee, should be judged on programmability and settlement efficiency, not retail wallet adoption.

The digital rupee could become the fourth layer of India's digital public infrastructure, encompassing digital identity, payments and account aggregators by embedding rules directly into money.

The largest economic benefit of the CBDC could come from wholesale applications, including tokenized securities settlement and cross-border payments.

In a tokenized global economy, the digital rupee could keep cross-border business-to-business trade and remittances anchored in sovereign currency, preventing a shift toward foreign-currency stablecoins.

India's CBDC has struggled to gain retail traction by design. Adoption is negligible against Unified Payments Interface (UPI) transaction volumes, but in agricultural credit, carbon credit disbursement and government securities settlement, the digital rupee is emerging as money that carries embedded conditions. This reflects its actual value proposition as a programmable settlement layer, with banks, rather than consumers, positioned as the primary beneficiaries.

UPI solved payments; the digital rupee is optimizing them through programmability

India does not need a CBDC to digitize payments. The UPI, like Pix in Brazil or M-Pesa in Kenya, offers instant payments and accounted for 49% of global real-time payment transactions in 2023, according to the most recent data from ACI Worldwide. UPI has become ubiquitous; it is low-cost and trusted by consumers and merchants alike. The introduction of a small merchant fee on selected large transactions could affect UPI adoption at the margin.

Retail adoption of the digital rupee, on the other hand, is modest. The digital rupee exceeded 1 million transactions in a day in December 2023, helped by bank-led efforts such as crediting some employee benefits into CBDC wallets and offering user incentives. Transaction numbers fell sharply once that support faded, a pattern also seen in Nigeria. Around 98.5% of eNaira wallets were unused for the year following its 2021 launch, according to the International Monetary Fund.

The Reserve Bank of India’s (RBI’s) most important CBDC decision may have been making it interoperable with the UPI, which has become the CBDC’s distribution network. CBDC is not competing with the UPI; it is building on it. The UPI may remain as the customer interface while the digital rupee evolves into the settlement asset for selected use cases.

Stablecoins rely on blockchains for instant payment settlement, so they need live connectivity, but the digital rupee can work offline, via telecom connectivity or near-field communication-based solutions. The digital rupee’s offline feature drives financial inclusion for low-connectivity users and provides backup resilience during network outages.

The case for a CBDC is no longer purely domestic. In a more geopolitically fragmented world, where payment systems have themselves become instruments of statecraft, control of the rails on which money moves is increasingly important to monetary sovereignty and national security, not just efficiency.

Judging the digital rupee by the right scorecard

The digital rupee’s value relates to programmability and transaction settlement, so it should be judged on outcomes, such as whether it lowers subsidy leakage in direct benefit transfer cases, enables programmable lending, cuts cross-border settlement costs and improves securities settlement, not wallet counts.

Programmability: The potential fourth layer of India’s digital public infrastructure

Programmable money reduces the gap between policy intent and actual spending outcomes. A programmable CBDC embeds rules and compliance directly into money: It can be released only when predefined conditions are met, restricted only to approved merchants, set to expire or automatically returned if unused. This is where India’s digital public infrastructure becomes uniquely powerful. Aadhaar, India’s biometric identification scheme, verifies identity; the UPI enables payments; the account aggregator shares consented data; and a programmable CBDC determines how money behaves. These independent capabilities multiply in value when stacked together.

India is already piloting policy use cases. IndusInd Bank’s programmable CBDC pilot for carbon-credit payments to 50 farmers in Ratnagiri links the digital rupee to verified outcomes and purpose-bound spending. Applied to India’s vast direct benefit transfer system, programmability could turn generic cash payments into purpose-bound, auditable transactions. Food subsidies redeemable only for eligible food grains or farm subsidies only for agricultural inputs are two such examples that would improve targeting and reduce leakage.

India’s approach is distinctive, selectively using retail programmability for targeted public policy. By contrast, the eurozone allows conditional payment execution (such as pay-on-delivery) for the digital euro while prohibiting programmable money properties, such as expiry dates or merchant restrictions, to keep it fully fungible and cash-like. The trade-off is control versus autonomy: Transparent governance and privacy protections will determine public acceptance.

The wholesale prize: Atomic settlement for a tokenized market

The greater opportunity for CBDC is in wholesale markets. India’s real-time gross settlement system already provides absolute settlement finality, but a wholesale CBDC (wCBDC) could enable programmable, atomic settlement across tokenized deposits, government securities and other financial contracts, exchanging cash and securities simultaneously.

This would reduce counterparty and settlement risk, shorten settlement cycles, and lower the liquidity tied up in settlement and reconciliation. The RBI identified greater interbank market efficiency and lower settlement costs as potential benefits when it launched the government securities pilot in 2022. More efficient issuance, trading and settlement can reduce friction across capital markets.

Tokenization could also make collateral more mobile and easier to reuse, allowing the same pool of liquidity and securities to support more transactions with less settlement risk.

The economic prize is not simply faster settlement; it is more productive use of liquidity, more efficient repurchase agreements and securities financing markets, and lower costs of financial intermediation, all of which contribute to capital market development in emerging markets.

Cross-border payments offer a second opportunity. With inward remittances of $151 billion in 2025, the largest of any country, and an average cost of 5.3% (versus a 6.4% global average and the United Nations’ 3% target), the addressable savings are substantial. CBDC-based corridors, stablecoins or other payment innovations could help cut costs. India’s bilateral CBDC engagements with the United Arab Emirates and Singapore are early steps. India stands to benefit from lower transaction costs, greater diversification of its settlement infrastructure and reduced dependence on correspondent banking networks.

Trade finance presents a third opportunity, if legal certainty and coordinated adoption are guaranteed. Programmable wCBDCs could allow payments to be automatically linked to shipments, customs clearance or contractual milestones, reducing counterparty risk and improving working-capital efficiency. The Bank for International Settlements (BIS), under Project Agorá, is also working on a shared global programmable infrastructure to make international wholesale payments.

Singapore has increasingly focused its CBDC experimentation on wholesale finance, including interbank settlement and cross-border transactions. Brazil’s Drex experience highlights the technical trade-offs. Efforts to combine privacy, scalability and programmability have proven challenging, pushing the project toward more targeted use in financial markets. China’s digital renminbi, recently reclassified as tokenized, interest-bearing deposits, will remain beneficial to Chinese corporates by offering lower transaction costs and accelerating cross-border settlement.

These experiences suggest that much of the innovation in CBDC design has gravitated toward wholesale settlement and tokenized financial markets, complemented by India’s expansion of programmable public-sector use cases.

The real contest: Sovereign money vs. stablecoins

As financial assets are tokenized, policymakers must decide if the settlement asset is sovereign money or privately issued stablecoins. India is the world’s fourth-largest adopter of crypto and stablecoin, according to TRM Labs’ Q1 2026 Global Crypto Adoption Index. Regulation permits holding and trading and prioritizes the digital rupee as the sovereign alternative, which could tarnish the appeal of other digital assets. However, it also bars banks from processing crypto transactions and offers unfavorable tax treatment. As tokenization expands, the RBI is unlikely to cede the system’s monetary foundation to private digital money. It is a long-term strategic contest, not a near-term threat. The BIS’ latest survey (No. 159, published in 2025) found that 91% of 93 central banks were engaged in CBDC work, with more than one in three accelerating specifically because of stablecoins. According to the BIS, stablecoins fail the tests of singleness, elasticity and integrity required to anchor the monetary system.

What peer experience teaches India

Retail-first launches with weak use cases have struggled; value has been concentrated in wholesale settlement and narrowly targeted programmability. India is unusual in combining a retail CBDC with purpose-bound programmability.

Monetary policy, financial stability and banks

From a credit perspective, it is important to establish what the digital rupee means for monetary transmission, financial stability and banks. Specific design choices, such as zero interest, low holding limits and a two-tier model, where the RBI issues the digital currency but commercial banks handle distribution and user interaction, explicitly protect traditional bank deposits and customer relationships. This makes bank disintermediation risk manageable, and it is similar to Europe’s plans for the digital euro.

Banks could become the digital rupee’s largest users in wholesale transactions and customer lending. Programmable end-use conditions, such as construction loans that pay only contractors, or farm loans used only for registered inputs, as in the State Bank of India–National Bank for Agriculture and Rural Development pilot, could turn costly post-disbursement monitoring into an underwriting advantage. Traditional post-disbursement monitoring, which relies on invoices, utilization certificates and site inspections, is costly, imperfect and retroactive. Programmable end-use monitoring automates this process to prevent fraud and fund diversion before money leaves the bank. That said, conditions bind only the first transaction, so programmability compresses diversion rather than eliminating it, and the greater the programmability, the greater the governance burden.

CBDCs could redistribute value across banking activities by reducing income from traditional intermediation, such as remittances, while creating opportunities in programmable financial services, such as becoming distribution partners for welfare payments.

Looking forward

The success of India’s CBDC experiment may be in its building of the infrastructure linking programmable money, tokenized deposits, tokenized government securities and digital contracts into one system. Judged on leakage, programmable lending, settlement costs and market efficiency, not wallet counts, the digital rupee’s promise is real, though the path forward will be incremental as legal reform catches up.

That infrastructure matters in an increasingly fragmented world. As the US dollar system, a China-led effort built on the multiple CBDC bridge and a stablecoin-dollarization channel pull in different directions, countries like India face a choice: Plug into someone else's rails or build their own. The digital rupee, plus bilateral CBDC links with other countries, would allow India some hedging.

In this case, the CBDC is no longer a digital form of cash. It becomes the settlement layer for a tokenized and more multipolar economy, embedding economic rules directly into money, just as Aadhaar embedded identity and the UPI embedded payments.