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You can soon scan UPI QR codes and pay with CBDC; here’s what this means for the future of the digital rupee

Shortly after RBI Deputy Governor’s announcement regarding the soon-to-launch digital currency, HDFC Bank commenced its service of CBDC interoperable QR codes.

The Reserve Bank of India (RBI) launched a pilot for the digital rupee (e₹) in December 2022 and over thirteen banks currently offer the Central Bank Digital Currency (CBDC) to its customers. But if you’re among those who haven’t found a compelling reason to go out of your way to try it yet, you might not have to — because CBDC will soon be interoperable with UPI QR codes.

“So anyone with UPI QR, that QR can be used for CBDC. If I have CBDC and go to a merchant, there’s just one QR, I scan it and if that merchant has a CBDC account it will go there and if they don’t it will go to their bank account through UPI,” RBI Deputy Governor T Rabi Sankar explained last week while speaking at Moneycontrol’s India Startup Conclave.

Soon after, HDFC Bank on July 13 announced the launch of its CBDC interoperable UPI QR codes. “The interoperable UPI QR code allows HDFC Bank merchants who have been onboarded on the bank’s CBDC platform, to accept payments from their customers in the form of Digital Rupee currency, boosting usage of CBDC in day-to-day transactions,” the bank stated, outlining the following benefits:

  • Benefits for consumers: Pay with money in their CBDC wallet by scanning any UPI QR code.
  • Benefits for merchants: Merchants don’t have to have separate QR codes for UPI and CBDC and can instead use a single QR code at their storefront or mobile application. Existing UPI QR codes will work with CBDC as well.

The convenience of integrating with the existing UPI QR codes could be a game changer for CBDC because UPI is the most popular digital payment in the country and its QR codes exist in almost every nook and corner of the country. The only thing left in pushing adoption of CBDC is getting users and merchants to open a digital rupee wallet.

Article continues below, you might also want to read: Everything you need to know about Indian Central Bank’s Digital Rupee 

What are the benefits of CBDC over other forms of digital payments like UPI?

1. Offline payments can be carried out even if there is no network connectivity because the money flows from wallet to wallet. You essentially withdraw money from the bank and put it in a digital wallet, instead of putting it in a physical wallet like you do with cash.

2. More privacy for users as transfers are from wallet to wallet without the involvement of any bank. CBDC might not offer the same level of anonymity as cash transactions but they offer more anonymity than other forms of digital payments. “A third party cannot find out to whom the money has been transferred as this information is not available with a bank,” Shaktikanta Das remarked.

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But it’s not clear whether or not the transactions are anonymous to RBI or the government because the central bank maintains the blockchain for the CBDC and might be able to track the flow of money.

3. More efficient back-end settlement and reduced settlement risk as there is no interbank settlement involved. With UPI and other digital payments, banks settle transactions at regular intervals even though on the front end you notice the money in your account immediately.

“Any UPI transaction involves the intermediation of the bank. So, when I use a UPI app, my bank account gets debited and money gets transferred to the recipient’s bank. In paper currency, you can draw Rs 1,000 from the bank, keep it in your wallet and spend it at a shop. Similarly in CBDC, you will draw the digital currency and keep it in your wallet on your mobile. When you make a payment at a shop or to another individual, it will move from your wallet to their wallet. There is no routing or intermediation of the bank,” RBI governor Shaktikanta Das explained last December.

4. Savings for the government in terms of printing cash as mass adoption of CBDC can lower the need for physical cash.

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