Introduction
The Reserve Bank of India launched its Central Bank Digital Currency (CBDC) pilots — the Digital Rupee — in late 2022, becoming one of a handful of major economies to move from research to active trial with a sovereign digital currency. The wholesale CBDC (e₹-W) pilot began in November 2022 with a limited number of participating banks transacting government securities through the CBDC infrastructure. The retail CBDC (e₹-R) pilot launched in December 2022, initially through a small number of banks and progressively expanded to a broader user base through 2023 and 2024.
The pilots have demonstrated technical feasibility. But feasibility is the beginning of a conversation, not its end. The digital rupee raises a cluster of legal questions that have not been resolved, about which the RBI’s enabling framework is largely silent, and whose resolution will determine whether the CBDC remains a niche payment instrument or becomes a transformative feature of the Indian financial system. What is the legal nature of a digital rupee holding — is it a claim, a property right, or a form of electronic money? What happens to a digital rupee balance if the holding institution fails? Does the programmability feature of CBDC — the ability to embed conditions on how and when the currency can be spent — create new legal relationships between the state and the citizen that existing monetary law does not contemplate?
Legal Framework
The legal basis for the digital rupee rests on amendments made to the Reserve Bank of India Act 1934 by the Finance Act 2022, which introduced a definition of “bank note” capable of encompassing digital currency and amended the Currency Ordinance’s definition of currency to include a CBDC. This amendment provides the statutory foundation for the RBI to issue CBDC as legal tender, but it does not resolve the downstream legal questions about the nature of CBDC as a legal object.
Under existing Indian monetary law, a rupee banknote is an obligation of the Reserve Bank of India — the bearer has a claim on the RBI for the face value of the note, which in practice means the RBI will exchange one denomination for another. A digital rupee, if it is a direct liability of the RBI, would be structurally different from commercial bank money (bank deposits), which are claims on the commercial bank rather than on the central bank. This distinction matters enormously for insolvency, deposit insurance, and systemic risk purposes.
The current retail CBDC model is an “indirect” or “hybrid” model: the RBI issues digital rupees to banks, which then distribute them to customers. Under this structure, the customer’s digital rupee balance is technically held by the bank, not directly by the RBI — raising the question of whether the customer has a direct claim on the RBI or merely on the bank, which holds the CBDC in trust.
Contemporary Issues and Analysis
The property law question is unresolved and consequential. Indian property law, derived from the Transfer of Property Act 1882 and the English common law tradition, does not have a ready category for digital currency. CBDC is not a chattel (it has no physical existence), not a chose in action in the traditional sense (it does not represent a debt owed by an identified debtor in the way that a bank deposit does), and not a negotiable instrument (its transfer characteristics are quite different from those of a bill of exchange or promissory note).
The closest analogy in English law is the emerging concept of “digital assets as property,” developed by the Law Commission of England and Wales in its 2023 report and incorporated into the Property (Digital Assets etc) Bill 2024 currently before the UK Parliament. The Law Commission proposed a new category of personal property — “things” — distinct from choses in possession and choses in action, specifically to accommodate digital assets that do not fit the existing binary classification. India has no equivalent conceptual development, leaving courts to improvise if property rights questions about CBDC arise.
The programmability dimension raises more politically sensitive questions. CBDC can, in principle, be issued with conditions attached to its use — spending limits by category, geographic restrictions on use, expiry dates for specific distributions, or identification requirements for specific transactions. These features are technically achievable and may be administratively desirable in certain contexts — conditional cash transfers for welfare beneficiaries, directed sectoral credit support — but they represent a qualitative shift in the nature of money. State-issued currency that can be programmed to constrain the holder’s choices is not simply “better cash” — it is a fundamentally different instrument of monetary sovereignty with implications for financial privacy, individual autonomy, and the constitutional dimensions of economic freedom.
Whether programmable restrictions on a digital rupee are legally valid requires analysis under Article 19(1)(g) (right to practise any profession or carry on any business), Article 21 (right to life and personal liberty, which the Supreme Court has extended to include economic autonomy), and Articles 14 and 15 (equality) if different digital rupee conditions are applied to different demographic groups.
Comparative and International Perspective
China’s e-CNY (digital yuan) is the most advanced CBDC programme among major economies, with over 260 million individual wallets opened and substantial transaction volumes through the testing phase. China’s e-CNY incorporates controllable anonymity — transactions are anonymous to merchants and third parties but traceable by the central bank and law enforcement with appropriate authorisation. The programmability features of the e-CNY have been used in targeted stimulus distributions during COVID-19, with time-limited spending coupons distributed to residents of specific cities.
The European Central Bank’s digital euro project, expected to launch in a pilot phase in 2026, has been designed with privacy as a core requirement: the ECB has committed that the digital euro will not allow the ECB to see individual transaction data, with privacy protection enforced through privacy-preserving cryptographic techniques. The EU’s design choice reflects a recognition that currency-level financial surveillance would be constitutionally unacceptable in the European legal order.
The Bahamas’ Sand Dollar, the Jamaican JAM-DEX, and Nigeria’s eNaira are operational retail CBDCs in smaller economies, each offering lessons about adoption challenges, interoperability with commercial bank money, and the limits of government-mandated payment system transitions.
Practical and Policy Implications
For commercial banks, CBDC creates a competitive risk: if retail customers hold digital rupees directly (or through banks in a way that substitutes for bank deposits), banks lose a funding source. The RBI has attempted to mitigate this by designing the retail CBDC to complement rather than replace bank deposits — for example, by not paying interest on CBDC holdings, making it less attractive as a store of value than interest-bearing deposits. But the line between complement and substitute is dynamic and will shift as CBDC design evolves.
For payment system participants, CBDC represents potential disruption to the profitable intermediation layer currently provided by payment aggregators, card networks, and UPI operators. A direct central-bank-to-retail payment infrastructure, particularly if interoperable with UPI, could reduce the economic role of payment intermediaries significantly.
Suggestions and Reforms
India needs a CBDC-specific legal framework — ideally a Digital Currency Act or a comprehensive amendment to the RBI Act — that expressly addresses the legal nature of digital rupee holdings (direct RBI liability vs. bank-mediated claim), the property rights of holders, the insolvency treatment of CBDC balances, and the legal limits of programmable features. Operating the digital rupee without these legal foundations creates risks that the pilots’ small scale currently conceals.
The RBI should publish a privacy design document for the digital rupee, committing to specific data access standards and the circumstances under which transaction data can be accessed by law enforcement or regulatory authorities.
Conclusion
The digital rupee is a significant monetary innovation and a credible long-term component of India’s financial infrastructure. Its legal architecture, however, is a work in progress at a stage when regulatory certainty should be consolidating rather than still forming. The property, payment, and programmability questions outlined here are not obstacles to CBDC adoption but conditions for its responsible implementation. A digital currency issued without a clear legal identity is a policy instrument waiting to generate the litigation that will, eventually and inefficiently, resolve the questions that could be answered now through thoughtful legislative design.
