Central Bank Digital Currency: China’s First-Mover Advantage and Policy Pathways for India

China’s lead in developing digital currencies has important implications for India and the global financial order.

China’s economic rise, US-China trade war, protectionism, use of economic sanctions and the sharpening geopolitical divisions have put the global economic order and international financial systems in a period of flux and uncertainty. Major powers are rushing to secure the lead in emerging technologies and their governance. In this context, the rapid proliferation of China’s digital yuan and cross border digital currency projects demonstrate its economic and technological heft, intended to advance its rise as a global superpower and rule setter. Further, China seeks to bolster its claim of democratisation of global governance and representation of the ‘Global South’. This blog examines the evolution of China’s domestic and international digital currency initiatives, providing policy insights that could inform the development of e-Rupee and India’s participation in multilateral digital currency platforms.

We argue that while China has shown substantial advancement in the development and adoption of digital currency domestically, its international ambitions will be constrained by structural problems like limited capital market integration. For India, there are several lessons on comparable challenges in adopting digital currency like digital literacy, regulation and policy support, increasing reach and accessibility, etc. These developments pose a critical question on the international front as well: as a vocal advocate of developing the ‘Global South’, will China’s progress with Central Bank Digital Currency (CBDC) propel India to augment its plans for a e-Rupee based payment infrastructure? Could India position itself as a bridge economy for the Global South, promoting interoperability and multi-currency cooperation rather than bloc-based financial fragmentation?

What is Central Bank Digital Currency?

CBDC is a digital form of money that has the same utility as the cash we currently use – to buy and sell in an economy. There are two forms of CBDC: retail CBDC (CBDC-R) which is used by consumers for daily payments to another user of the CBDC; and wholesale CBDC (CBDC-W) which is utilised for transactions exclusively between financial institutions, primarily central and commercial banks.

The concept of a CBDC emerged in 1993, with the Bank of Finland’s  Avant smart card as an electronic version of its cash currency. However, since the mid-2010s, there has been a resurgence of CBDCs. This is mainly attributed to two concurrent factors. First, the rise of private cryptocurrencies such as bitcoin revealed the potential as well as risks of digital currencies. Cryptocurrencies, though easily accessible and marketable, are decentralised, lack consumer protection, are prone to security risks like phishing scams, and volatile due to their speculative nature. In contrast, CBDCs are regulated by the central banks and like cash currencies are pegged to the value of the national currency, therefore making them stable to use.

Second, post COVID-19, there has been a preference for digital payment systems, coinciding with a decline in the use of cash and associated cash flow shortages. Further, implementation of a CBDC reduces operational costs such as printing paper money. Emerging economies bear costs as high as 1.5% of the GDP to produce and maintain cash. In the case of India, the Reserve Bank of India (RBI) incurred a cost of approximately USD 745 million in the financial year (FY) 2024-2025.

According to the Atlantic Council’s Central Bank Digital Currency Tracker, all G20 countries and BRICS founding members, as well as another 100+ countries are developing a CBDC. However, in terms of scale and technological advancement levels, China has the most extensive CBDC pilot program. This is discussed next.

China’s digital currency experiment 

The digital yuan (e-CNY) pilot program was introduced in 2019 and is now spread over 17 provinces, with over 225 million personal digital wallets as of 2025. The People’s Bank of China (PBoC) in 2016 had developed the Digital Currency Institute to invest in research and development, which then launched a Proof-of-Concept prototype to examine the feasibility of the e-CNY. China initially introduced its pilot project in economic and manufacturing hubs like Shenzhen, Suzhou, Chengdu and smart city Xiong’an in 2020. Later in the same year, the e-CNY was extended to Shanghai, Hainan, Changsha, Xi’an, Qingdao, and Dalian. Schemes like red packet lotteries were used to attract early users. By 2021, major economic belts of China such as the Yangtse River Delta, Pearl River Delta and the Beijing-Tianjin-Heibei region were using the e-CNY. In 2022, the e-CNY became interoperable with digital payment interfaces like Alipay and WeChat Pay. Extensive promotions to use e-CNY were made at the 2022 Winter Olympic Games and the 2023 19^th Asian Games, demonstrating its preparation to be launched at the global stage. According to some reports, during the 2022 Olympics, more than USD 3,15,000 worth of digital yuan payments were recorded every day. By 2024, the transaction value of e-CNY in China reached to more than USD 985 billion, indicating rapid adoption. China’s upcoming 15^th Five Year Plan once again emphasises on the significance of the digital Renminbi in its efforts to spur a digital finance transformation, demonstrating political support of the top-level leadership.

The e-CNY pilot has boosted China’s domestic digitalisation efforts. Digital payments in China have reached a transaction value of about USD 10 trillion in 2025. In addition to online interoperability, the PBoC has collaborated with smartphone providers to make the e-CNY functional in offline mode. By utilising technologies such as the Near-Field Communications (NFC), which facilitate transactions in low internet range areas using short-range wireless communications, PBoC aims to make the digital currency accessible to remote and rural areas in China. Digital yuan also affords greater privacy in personal data protection than payment applications as it requires only a phone number to set up a wallet unlike payments apps which require extensive verifications and facial recognition details.

Bolstering the narratives of de-dollarisation of international trade and a move away from the SWIFT payments system, China has taken steps towards internationalisation of the RMB and adoption of e-CNY for cross-border transactions, with its multicurrency CBDC initiative Project mBridge.

Finally, bolstering the narratives of de-dollarisation of international trade and a move away from the SWIFT payments system, China has taken steps towards internationalisation of the RMB and adoption of e-CNY for cross-border transactions, particularly with its multicurrency CBDC initiative Project mBridge, which is discussed next.

Project mBridge: potential catalyst for the Renminbi’s globalisation

Project mBridge is a multi-state project commenced by the Bank of International Settlements’ Innovation Hub and involves the central banks of China, Hong Kong, Thailand, Saudi Arabia, and United Arab Emirates (UAE). In 2022, 20 commercial banks from Hong Kong, China, Thailand and UAE transacted more than USD 22 million through mBridge. In 2024, the UAE conducted its first-ever cross-border CBDC transaction to China worth Digital Dirham 50 million (USD 13.6 million). The mBridge is designed as an “efficient, low-cost and common multi-CBDC platform” to enable central and commercial banks in facilitating cross-border business. It has its own blockchain, the mBridge ledger which enables “peer-to-peer, cross-border payments” in real time. It attained a minimum viable product (MVP) stage in late 2024, making it the first cross-border CBDC to reach that stage so far. The mBridge framework could also potentially be interoperable with non-CBDC platforms.

Project mBridge illustrates China’s technological advancements in global financial flows technology. First, it is not only a messaging service like SWIFT, which enables banks to communicate regarding transfers, but also a decentralised platform for banks to execute and record transactions in real-time. In 2021, the mBridge’s prototype Ithanon-Lion Rock was projected to reduce transaction times by 80%, while also reducing the transaction costs by 50%. This is relevant given that cross-border payments incur a transaction cost of nearly USD 120 billion every year. Further, integration of the mBridge with China’s Cross-Border Interbank Payment System (CIPS) could potentially challenge global popularity of the SWIFT system since CIPS is significantly faster than the SWIFT system.

Second, the mBridge initiative is facilitated by a distributed ledger technology (DLT) which enables transactions in real-time between multiple parties through a decentralised network, eliminating reliance on intermediate actors and currency exchange rates. While initially relying on Ethereum’s Solidify blockchain mechanism post 2023, the project has transitioned to adopt China’s Dashing Protocol model, developed by the PBoC’s Digital Currency Institute. This makes Chinese models viable options for developing countries and groupings to adopt and build on with little investments in capital intensive R&D. This is noteworthy as China has been taking a lead in setting alternative global protocols and norms and advocating for common standards (China Standards 2035) under the Belt and Road Initiative.

However, despite China’s ambitions to internationalise the e-CNY, some structural limitations persist. First, strict regulations on China’s capital account makes the e-CNY inflexible to purchase and sell in the international market. Second, the e-CNY cannot solely resolve constraints posed by its relatively illiquid financial markets, resulting in limited yuan-denominated international debt securities. Third, obscure and state-controlled data coupled with unpredictable foreign investment guidelines may hinder China’s credibility as an international reserve currency provider. Other major economies are too investing in multi-currency CBDC initiatives, offering lucrative alternatives of mBridge – Project Agorá  (Central banks of France, Japan, Korea, Mexico, Switzerland, England and the Federal Reserve Bank of New York), Project Mandala (Bank of International Settlements (BIS) Innovation Hub Singapore, central banks of Singapore, Australia, South Korea and Malaysia) and Project Rialto (central banks of France, Italy, Malaysia and Singapore) being notable ones.

Source: Compiled by authors

e-Rupee: A new chapter to India’s digital payments revolution?

Like China, India has banned cryptocurrencies and adopted a centralised sovereign CBDC, with incremental rollout.  Figure 2 shows a side-by-side timeline of development of CBDCs in India and China.

In March 2022, the Finance Act of 2022 introduced by the Indian Government amended the Reserve Bank of India Act of 1934 to facilitate the inclusion of the CBDC as a legal tender. The Digital Rupee was introduced in late 2022 as a pilot project and is interoperable with paper rupee as well as Unified Payments Interface (UPI). By December 2025, the RBI recorded approximately 8 million CBDC-R users with 19 banks being authorised to distribute the CBDC. Since FY 2022-23, India’s CBDC-R transactions in the economy have risen exponentially– from USD 0.7 million between November 2022 and March 2023 to USD 113 million by the end of FY 2024-25. A cumulative CBDC-R transaction value of more than USD 3 billion by the end of 2025 and a 33% rise in the number of users in a year illustrates the rapid adoption of the e-Rupee in the retail space. This positive response can be attributed to the several advantageous features of CBDC.

Thus, the complementary nature of CBDC and UPI bolsters India’s growing digital economy (UPI transactions reached values worth USD 292.4 billion as of November 2025), which is expected to contribute at least 20% to India’s GDP by 2030.

The e-Rupee is interoperable with the paper form of the rupee. It has the same features and will coexist with paper money. More importantly, the e-Rupee will be stored in an e-wallet and can be used by scanning a CBDC QR code or a UPI QR code. This interoperability serves as a tool for greater financial inclusion, particularly in areas where there is low penetration of banking services. UPI-based accounts require a KYC-linked bank account. The token-based nature of the e-Rupee grants it the potential to function with lower KYC requirements for those not included in the banking system, hence increasing accessibility. Further, the interoperability saves people the trouble of acquainting a new digital model of payments. Thus, the complementary nature of CBDC and UPI bolsters India’s growing digital economy (UPI transactions reached values worth USD 292.4 billion as of November 2025), which is expected to contribute at least 20% to India’s GDP by 2030.

Second, the e-Rupee ensures flexibility. The e-Rupee is also available in offline mode – a feature that is identical to the e-CNY’s offline mode. This addresses the challenge of internet and mobile network connectivity required for using UPI (UPI even in offline mode requires a mobile network). Hence, users in areas of limited internet and mobile connectivity can also pay using the e-Rupee. The RBI has integrated Near-Field Communications connections in mobiles to streamline the e-Rupee’s offline availability. This greatly reduces the dependence of storing and managing cash for consumers and making it easier to manage finances. Additionally, users do not require a minimum balance to store their e-Rupee in their digital wallets. Like the UPI, users can transfer and transact beyond the banking hours on all days of the week.

Integrating e-Rupee infrastructure into public-finance management and subsidy delivery systems could improve accountability and expenditure traceability, thereby linking digital finance to fiscal transparency.

Third, e-Rupee is versatile. It can serve as catalyst for economic growth by being used for Direct Benefit Transfer schemes and mitigate the problem of leakage in subsidy schemes and misuse of funds through pre-programmability (CBDC can only be used for the said purpose). For instance, the Odisha state government, under the Subadhra Yojana scheme, paid more than 80,000 beneficiaries INR 10,000 each in e-Rupees. This aims to enhance the financial safety net for women, augmenting their professional growth and digital financial literacy. Another example of promoting CBDC usage and experimentation is the PM-Vidyalaxmi Scheme wherein eligible students receive government subsidy in the form of e-Rupee. Integrating e-Rupee infrastructure into public-finance management and subsidy delivery systems could improve accountability and expenditure traceability, thereby linking digital finance to fiscal transparency.

At the international level, CBDC-W could mitigate the time taken to settle payments under other international payment mechanisms, as seen with the case of Project mBridge. With India being the largest recipient of foreign remittances at over USD 135 billion, this could be a highly beneficial development. CBDCs could also diversify trade destinations for India make digital currencies a crucial development for India’s economy as well as to expand UPI’s global outreach. However, despite the rise in usage of retail CBDC transactions over this time, the circulation of wholesale CBDC dropped from USD 1.19 million in FY 2022-23 to USD 0 in FY 2024-25. This drop might be due to the popularity of other existing wholesale inter-bank settlement frameworks like RTGS (Real-Time Gross Settlement). However, while RTGS is highly efficient in the domestic scenario, it is not yet programmed for cross-border transactions due to the lack of a shared cross-border digital ledger (which CBDC-W has). Hence, weak circulation and low adoption of CBDC-W is counter-productive to India’s aspirations to possibly join cross-border CBDC initiatives, and greater integration with the global economy.[1]

Whether the RBI is considering joining the projects or is keen on initiating its own cross-border project, the possibility of being part of the cross-border CBDC network can further elevate India as a global financial power.

In its 2024-25 annual report, the RBI states that its “participation in multilateral CBDC initiatives, particularly under the Bank of International Settlements (BIS) Innovation Hub, are also being considered”. These might include i. Project Agorá (BIS, Banks of France, Japan, Korea, Mexico, Switzerland, England, New York); ii. Project Rialto (BIS Innovation Hub (BISIH) Euro system, Italy, Malaysia and Singapore); iii. Project Polaris (BISIH Nordic Centre); iv. Project Aurum 2.0 (BISIH Hong Kong, Hong Kong); and v. Project Mandala. Whether the RBI is considering joining the projects or is keen on initiating its own cross-border project, the possibility of being part of the cross-border CBDC network can further elevate India as a global financial power.

Nevertheless, despite such declaration of intent and increasing global popularity of cross border digital currency, India has maintained a conservative approach to their adoption when compared to other economic powers. There is a need for policy measures from the government to accelerate its e-Rupee pilot project for commercial and business usage and enhance its CBDC-W capabilities. According to experts, CBDC adoption also raises major concerns around privacy, monetary sovereignty, financial stability, and simplicity. Privacy risks include identity theft, data leakage, cyberattacks, and service disruptions, requiring strict controls over access to sensitive banking data. While CBDCs help central banks retain monetary sovereignty, they also shift responsibilities, such as monitoring money laundering and managing user data, away from commercial banks. Financial stability concerns include financial disintermediation, where banks might lose their role as intermediaries in circulating money and their source of income due to the interest-free nature of CBDCs. Finally, limited interoperability, reliance on e-wallets, and low digital and financial literacy create usability challenges and increase fraud risks. As China’s case shows, tackling these challenges demands consistent policy support, capital investments and addressing the financial literacy gaps.

China’s e-CNY pilot project offers valuable lessons in terms of technological innovation and infrastructure, but also in anticipating the governance, regulatory, and geopolitical challenges that such systems entail.

Conclusion

For India, CBDCs could be the new era of digital payments, shaping its economic development and digitalisation ambitions as well as impacting global trade and payment flows. China’s e-CNY pilot project offers valuable lessons in terms of technological innovation and infrastructure, but also in anticipating the governance, regulatory, and geopolitical challenges that such systems entail. Coherent regulatory positioning and policy support, with incremental pilot programmes and digital literacy campaigns could help e-Rupee overcome foundational hurdles and gain user base. While China enjoys a first-mover advantage in the internationalisation of its CBDC, India’s strength lies in the credibility of its digital payment ecosystem, especially the global recognition of UPI as well as its diplomatic positioning. Monitoring global developments in the sector and exploring strategic cooperation with like-minded partner countries will aid India’s twin goals of financial sovereignty and openness to new and emerging tech adoption. As digital currencies gain prominence in national and international payments, further research is needed to examine various facets of CBDC like their impact on digital and financial inclusion, comparative regulatory norms, and reforms in global financial order and payments systems.

Shruti Jargad is a non-resident research associate and Nachiket Javali is a former intern at CSEP. The authors would like to thank Dr Constantino Xavier, Dr Janak Raj, Dr Anoop Singh and Mr Deepak Maheshwari for their feedback.