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

Central bank digital currencies — official digital versions of national currencies, issued and backed directly by a central bank rather than a commercial bank or private company — have moved from academic proposal to live pilot programme in dozens of countries. India's Reserve Bank has been running its ‘e-Rupee’ pilot since late 2022, alongside similar projects from China's digital yuan to the European Central Bank's digital euro preparations.

Adoption, however, remains modest almost everywhere. India's e-Rupee circulation grew sharply — up roughly 334% to about ₹10.16 billion (roughly $122 million) by early 2025 — but that figure is a rounding error next to the trillions of rupees that move through India's UPI instant payment system each month. Retail users and merchants overwhelmingly still prefer existing digital payment rails they already trust and understand.

Rather than chase raw transaction volume, central banks including the RBI have shifted focus toward specific functionality: offline CBDC payments using near-field communication (useful where internet connectivity is unreliable), and ‘programmability’ that could let governments direct welfare payments to be spent only on specified goods. Wholesale CBDC — used for interbank settlement rather than retail payments — is quietly advancing faster than retail versions in many countries, with less public attention but potentially larger near-term impact on financial market plumbing.

CBDCs come in two structurally different forms, and conflating them is the most common source of confusion in public discussion. Retail CBDC is designed for use by ordinary households and businesses, functioning similarly to digital cash — a direct central bank liability, unlike bank deposits, which are liabilities of commercial banks. Wholesale CBDC, by contrast, is restricted to banks and financial institutions for interbank settlement, essentially modernising the plumbing that already exists between central banks and the commercial banking system. Much of the genuine near-term progress — including in India's own CBDC programme — is happening on the wholesale side, where the case for efficiency gains is clearer and the risks to commercial bank deposit bases are lower.

Retail CBDC faces a harder adoption problem, and India's experience illustrates why. The RBI launched its e-Rupee retail pilot in December 2022, expanding steadily across cities and use cases since. Circulation has grown quickly in percentage terms — up 334% to roughly ₹10.16 billion by March 2025 — but this remains a tiny fraction of the value processed monthly through the Unified Payments Interface (UPI), India's real-time payment system that already gives most Indians a fast, free, widely-accepted digital payment option. When an alternative already solves the problem a new technology is meant to solve, adoption inevitably lags, regardless of the new technology's other merits.

This has pushed the RBI's 2026 strategy toward differentiation rather than raw volume competition. Two features stand out. First, offline functionality using near-field communication (NFC) technology, allowing e-Rupee transactions without an active internet connection — directly useful in India's more remote regions where connectivity is patchy, a genuine gap UPI cannot fully address. Second, ‘programmability’: the ability to restrict how a specific digital rupee can be spent, which has direct application to targeted government transfers such as fertiliser subsidies, education scholarships, or disaster relief, where authorities want assurance that funds reach their intended purpose rather than being diverted.

The broader global picture shows similar patterns of pilot-stage caution. China's digital yuan (e-CNY) has the most extensive retail rollout globally, integrated into some government payroll and transit systems, yet even there transaction volumes remain modest relative to existing mobile payment platforms. The European Central Bank continues preparatory work on a digital euro but has not committed to a launch date, partly due to unresolved concerns from commercial banks about deposit disintermediation — the risk that if a CBDC becomes an attractive alternative to a bank deposit, funds could flow out of the banking system during periods of stress, amplifying rather than dampening financial instability.

For 2026-2028, the more plausible near-term trajectory across most CBDC programmes, India's included, looks like continued pilot expansion, deeper wholesale CBDC integration for interbank settlement, and selective retail use in specific channels like targeted government transfers — rather than a wholesale replacement of existing payment systems. The strategic case for persisting, even amid modest retail adoption, rests less on near-term transaction volume and more on maintaining monetary sovereignty and payment system resilience as private and foreign digital payment alternatives continue to expand their reach.

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.