Digital Currency and the Indian Economy: A Comprehensive Review

Abstract

Digital currency has emerged as a transformative force in modern financial systems, especially within developing economies like India. This review investigates the evolution, design, and policy implications of India's Central Bank Digital Currency (CBDC), the Digital Rupee (?), introduced by the Reserve Bank of India (RBI). It explores the rationale for its development amidst a growing digital payments ecosystem, assessing its intended role in complementing cash and improving the efficiency of existing payment infrastructures. The paper evaluates key applications of the Digital Rupee including retail transactions, government transfers, interbank settlements, and potential cross-border use. The analysis highlights significant benefits such as promoting financial inclusion, reducing cash-handling costs, enhancing transparency in public welfare delivery, enabling programmable payments, and strengthening monetary sovereignty by offering a stable alternative to cryptocurrencies. However, the adoption of CBDCs also raises critical concerns around cybersecurity, privacy, regulatory readiness, digital infrastructure disparities, and potential disruption to traditional banking intermediation. India’s phased rollout and two-tier operational model are reviewed alongside international experiences, including those of China, Sweden, the Bahamas, and Nigeria, to identify global best practices and contextual challenges. Ultimately, this paper argues that the success of the Digital Rupee will depend on coordinated policy formulation, public trust, robust technological architecture, and inclusive access. If implemented strategically, digital currency in India holds the potential to transform the country’s financial ecosystem, drive innovation in digital governance, and position India as a leader in the future of money.

Keywords: Digital currency, CBDC, Digital Rupee, RBI, Indian economy, financial inclusion, blockchain, digital payments