Page 27 - Banking Finance November 2025

ARTICLE

pecially important because India receives more money trans-
fers than any other country. Programmable CBDCs could
help millions of Indian families save a lot of money and time
by reducing costs and delays. India's desire to be a part of
international CBDC projects, especially those run by the
Bank for International Settlements (BIS) Innovation Hub,
shows that it is dedicated to promoting global financial co-
operation and innovation.

Tech behind it
Programmable CBDCs are based on a wide range of tech-
nologies, but most of the time they use strong centralized
systems or distributed ledger technologies (DLT) like
blockchain. The most important thing is being able to build
logic and conditions right into the units of digital currency. knowledge proofs are being looked into as possible ways
This makes money, where each unit has its own set of rules. to make sure compliance without giving away private
transaction information. This could lead to responsible
Open Application Programming Interfaces (APIs) connect to
the RBI's CBDC infrastructure to the rest of the banking programming.
ecosystem. This modular and interoperable design would let b. Financial Stability: This is the fundamental problem
commercial banks, fintech companies and other payment with CBDC which might affect India's current commer-
service providers build new apps and services on top of the cial banking industry and the country's financial stabil-
programmable digital rupee. This would create a thriving ity. Through CBDC, people could now have a direct li-
ecosystem of financial innovation while still letting the RBI ability to the central bank. If this isn't carefully handled,
keep full control and oversight. It is important for systems it could cause a lot of deposits to move from commer-
to be able to talk and do business with each other without cial banks to the RBI, especially when the economy is
any problems, no matter what technology they use. uncertain. This "disintermediation" could make it harder
for banks to lend money and distribute capital, which
Challenges could make the financial system less stable. Because of
this, the RBI is carefully planning CBDC models that
Though benefits are many, getting people to use Program- could include holding limits, tiered interest rates or a
mable CBDCs is a bit challenging because there are couple two-tiered system where the RBI issues the digital ru-
of problems that need to be solved. pee and private banks and other regulated entities
a. Privacy: The most controversial problem is about pri- handle services for customers and distribution. The goal
vacy. Programmable CBDCs may face roadblock because
of this approach is to make sure that CBDCs don't get
they can impose conditions and track transactions. How-
in the way of commercial banks' important role in cre-
ever, this feature also raises valid concerns about the
ating credit and managing money.
possibility of unprecedented government oversight and
control over people's financial activities. Strong protec- c. Operational Stability: For a digital currency to serve
tions are needed because of the scary thought of a so- more than a billion people, operational stability and se-
ciety where every transaction is watched, every paisa curity are the most important things. A national digital
can be controlled and people's financial freedom might currency system needs to be very strong so that it can
be limited. It is very hard to make a system that bal- work perfectly 24 hours a day, seven days a week, 365
ances the need for financial integrity and measures to days a year. It also needs to have security that can't be
stop illegal finance with people's basic right to privacy. broken, so that hacks and system failures can't happen.
It needs careful architectural choices, strong data pro- In India, where there are a lot of people, the huge
tection rules that are in line with India's Digital Personal number of transactions in a retail CBDC system means
Data Protection Act 2023 and constant public discus- that the infrastructure needs to be safe, scalable and
sion. Privacy-enhancing technologies (PETs), like zero- able to handle shocks like power outages and natural

24 | 2025 | NOVEMBER | BANKING FINANCE