India Launches CBDC-Based Public Distribution System
India has launched a public distribution system for subsidies that utilizes its central bank digital currency (CBDC). The system uses digital tokens in beneficiary wallets to enable real-time delivery of benefits and access to grain from specialized ATMs, integrating digital identity with programmable money.
- The system is an application of India's retail Central Bank Digital Currency (CBDC), the Digital Rupee (e₹-R). The pilot for the retail e₹-R was launched on December 1, 2022, and is distinct from the wholesale CBDC (e₹-W) which is used for interbank settlements. - The underlying architecture is a two-tiered model where the Reserve Bank of India (RBI) issues the digital currency to intermediary banks. These banks, which include 19 commercial banks and non-bank entities like CRED and MobiKwik, are then responsible for distributing the e₹-R to consumers and providing digital wallet services. - The system leverages programmability, a key feature of the e₹, to ensure funds are used for their intended purpose. The digital tokens can be programmed with specific conditions, such as being redeemable only at designated Fair Price Shops for the purchase of foodgrains, preventing leakage and misuse of subsidies. - For the end-user, the transaction is facilitated through a digital wallet on a mobile device. Beneficiaries can make payments by scanning QR codes at the merchant location, with the system designed for interoperability with the existing Unified Payments Interface (UPI) QR codes. - This initiative builds on the concept of the e-RUPI prepaid digital voucher, which is also built on the UPI platform and designed for person- and purpose-specific payments. The CBDC implementation represents a shift from a voucher system to using a sovereign digital currency as the underlying instrument for subsidy delivery. - India's retail CBDC is token-based, making it similar to physical cash, rather than account-based. The core issuance ledger between the RBI and commercial banks utilizes a Distributed Ledger Technology (DLT) platform, specifically Hyperledger Fabric, while the retail layer leverages the scalable API infrastructure inspired by UPI. - The pilot program is being closely watched for its potential to reduce operational costs associated with managing physical cash and to enhance financial inclusion. The RBI is also testing offline capabilities for the e₹-R to ensure transactions can occur in areas with limited or no internet connectivity. - The launch in Gujarat is a limited-scale, controlled rollout designed to test the technology, architecture, and scalability of using a CBDC for government benefit transfers. Following this pilot, the program is expected to expand to other regions, including the Union Territories of Chandigarh, Puducherry, and Dadra & Nagar Haveli.
