The Race to Digitise Money: Where Central Bank Digital Currencies Stand in 2026

The theoretical case for central bank digital currency rests on several distinct rationales that are frequently conflated in public discussion but have quite different policy implications. The first is a financial inclusion rationale, most relevant in economies with large unbanked populations, where a CBDC could provide a no-fee, centrally-guaranteed digital payment instrument accessible via basic mobile devices without requiring a commercial bank account. The second is a monetary sovereignty rationale, increasingly cited by central banks concerned about the growing footprint of privately-issued stablecoins and foreign digital payment platforms, which could over time erode a central bank's ability to conduct monetary policy if a meaningful share of domestic transactions migrate outside the traditional bank-deposit system. The third is a payment system efficiency rationale, primarily applicable to wholesale CBDC, where faster, programmable interbank settlement could reduce counterparty risk and settlement latency in large-value payment systems.

India's e-Rupee programme, since its December 2022 retail launch, has offered one of the most closely-watched real-world tests of the financial inclusion and monetary sovereignty rationales specifically, precisely because India already possesses UPI — arguably the world's most successful real-time retail payment system, processing enormous transaction volumes at near-zero marginal cost to users. This creates an unusually clean natural experiment: unlike jurisdictions where digital payment infrastructure is underdeveloped and a CBDC might genuinely fill an inclusion gap, India's CBDC must compete directly against an already-excellent incumbent. The result, as reflected in adoption data, is precisely what basic economic reasoning would predict: circulation has grown in percentage terms from a low base (334% growth to roughly ₹10.16 billion, or approximately $122 million, by March 2025) but remains negligible relative to UPI's monthly transaction value, measured in the tens of trillions of rupees.

This has prompted the RBI to reorient its e-Rupee strategy around use cases where UPI has genuine structural gaps rather than attempting head-to-head volume competition. Offline functionality via near-field communication addresses connectivity gaps in rural and remote regions where UPI's reliance on continuous internet connectivity creates friction. Programmability — the ability to encode spending restrictions directly into a unit of digital currency — targets a different gap: the challenge of ensuring targeted government transfers are spent on their intended purpose. Conventional cash transfers cannot enforce this; programmable CBDC units in principle can, though this raises separate and largely unresolved questions about privacy, since programmability requires the issuing authority to embed and potentially monitor spending conditions at the individual transaction level.

Wholesale CBDC development, meanwhile, has progressed with comparatively less public attention but arguably more immediate financial-system relevance. Interbank settlement using wholesale CBDC could compress settlement times from the current batch-processing cycles common in most real-time gross settlement (RTGS) systems toward continuous, atomic settlement, reducing intraday liquidity requirements and counterparty exposure across the banking system. Because wholesale CBDC involves a closed set of licensed financial institutions rather than the general public, it avoids the deposit-disintermediation risk that dominates retail CBDC policy debate, explaining why several central banks — India's included — have prioritised wholesale pilots for interbank and eventually cross-border settlement use cases.

The deposit disintermediation concern deserves closer examination given how central it is to retail CBDC design choices globally. If a retail CBDC pays interest or is otherwise made highly attractive relative to a commercial bank deposit, economic theory predicts funds would migrate from bank deposits toward CBDC holdings, particularly during periods of banking-sector stress when a central-bank-backed instrument carries essentially zero credit risk compared to a commercial bank deposit, however well-insured. This ‘digital bank run’ concern has led most central banks, including the RBI, to deliberately design retail CBDC as non-interest-bearing and, in some designs, subject to holding limits, explicitly to avoid destabilising the commercial banking system's deposit funding base — a design constraint that simultaneously limits retail CBDC's attractiveness as a savings instrument and thereby further dampens the very adoption central banks are hoping to encourage.

Looking toward 2026-2028, the most probable trajectory across major CBDC programmes combines continued retail pilot expansion at a measured pace, deeper wholesale CBDC integration for interbank and cross-border settlement, and selective, targeted retail use cases tied to government transfer programmes rather than a broad-based retail payment substitution. Full retail CBDC dominance over existing systems like UPI or established card networks appears unlikely on this timeline in any major economy, not due to technological limitations but because the incumbent digital payment systems these CBDCs would need to displace are, in most of the relevant markets, already fast, cheap, and deeply embedded in consumer habit — a reminder that monetary technology adoption, like most technology adoption, is governed as much by existing infrastructure and switching costs as by the intrinsic merits of the new system.