India already has one of the most successful digital-payment systems ever built.
A vegetable vendor can display a QR code.
A customer scans it.
Money moves from one bank account to another in seconds.
No card machine. No cash. No waiting for settlement.
That system is UPI, and it has become so deeply embedded in daily Indian life that replacing it can sound almost unnecessary.
Yet underneath India's familiar QR-code economy, the Reserve Bank of India is developing something fundamentally different.
The digital rupee — e₹.
And after several years of cautious experimentation, policymakers are beginning to talk about it with greater urgency.
Speaking at the Global Fintech Fest 2026 in Mumbai, Finance Minister Nirmala Sitharaman urged the Reserve Bank of India to move faster on both its wholesale and retail central bank digital currency pilots.
“I urge the RBI to further advance and also develop what it has initiated through both the wholesale and retail CBDC pilots.”
She added that the central bank needs to “continue to sharpen its capabilities with the digital rupee.”
The timing matters.
Finance is entering an era of tokenised assets, autonomous AI agents, programmable transactions and potentially quantum-era computing.
And suddenly, the question surrounding the digital rupee is no longer simply:
Why does India need another way to pay when UPI already works so well?
A more important question is emerging.
What happens when money itself needs to become digital infrastructure?
First, the most important distinction: UPI is not money
This is where discussions about the digital rupee often become confusing.
UPI and e₹ may appear similar to a consumer.
Both can live inside a smartphone.
Both can use QR codes.
Both can transfer value instantly.
But technologically and financially, they are very different things.
UPI is a payment system.
The money generally remains inside commercial bank accounts.
When someone pays ₹500 through UPI, the system sends instructions that move ₹500 from one bank account to another.
UPI is therefore the rail over which bank money travels.
The digital rupee is different.
e₹ is the money itself.
The Reserve Bank describes the digital rupee as India's central bank digital currency and the digital equivalent of physical rupee notes. It is issued by the RBI and stored in digital wallets.
That makes the easiest analogy surprisingly simple.
A ₹500 note in your wallet is central-bank money.
₹500 sitting in your bank account is commercial-bank money.
₹500 stored as e₹ is essentially the digital equivalent of that ₹500 currency note.
UPI digitised the movement of money. The digital rupee attempts to digitise the money itself.
That distinction may become extremely important.
So could you eventually pay without UPI?
Yes — technically, you already can.
Retail e₹ can be transferred directly from one digital-rupee wallet to another.
A transaction does not fundamentally require UPI because the digital currency itself moves between wallets.
But there is an important twist.
The RBI deliberately made e₹ interoperable with UPI QR codes, allowing digital-rupee users to scan the same QR infrastructure already deployed across millions of Indian merchants.
That means the future is unlikely to be a simplistic battle of:
UPI versus digital rupee.
A more realistic outcome is:
UPI and e₹ working together — while doing different jobs.
A customer may continue scanning exactly the same QR code at a tea shop without necessarily caring whether the money travels from a bank account through UPI or from an e₹ wallet.
For consumers, the experience could eventually become almost invisible.
Behind that familiar QR code, however, the financial architecture could be very different.
And UPI is far too successful to simply disappear
Any suggestion that the digital rupee is about to replace UPI should immediately be treated with caution.
UPI is enormous.
In August 2026 alone, the platform processed approximately 24.5 billion transactions worth ₹29.82 trillion, according to Reuters. It accounted for roughly 84% of India's retail digital payments by transaction volume.
India is also pushing UPI internationally.
Prime Minister Narendra Modi recently called for deeper connections between UPI and payment systems in other countries. As of September, UPI had reached or connected with payment ecosystems across 11 countries, according to Reuters.
NPCI is simultaneously adding features rather than winding UPI down.
This month it launched an expanded tap-and-pay capability, allowing compatible devices to initiate contactless UPI transactions using NFC, including functionality designed for weak-connectivity environments.
So India is not abandoning UPI.
Far from it.
It is expanding it.
The digital rupee is being developed alongside it.
Then why create e₹ at all?
This is the central question.
If UPI already provides instant payments, what exactly does a digital rupee solve?
The answer begins with settlement.
Suppose Bank A sends money to Bank B through a traditional payment system.
Users may experience that transaction as instantaneous, but behind the scenes there are accounts, intermediaries, clearing mechanisms and settlement arrangements.
With central-bank digital currency, the asset being transferred is itself a direct liability of the RBI.
In principle, that creates the possibility of something closer to digital cash settlement.
Ownership of the currency can move directly.
For ordinary purchases, the difference may feel trivial.
For financial markets, tokenised securities, institutional transactions and cross-border settlement, it could be transformative.
And that is exactly where Sitharaman's latest comments become important.
The REC bond experiment changed the conversation
India has recently tested one of the clearest real-world examples of why CBDC may matter.
REC Ltd completed what officials described as India's first tokenised corporate bond pilot under SEBI's regulatory sandbox.
In that experiment, both sides of the transaction moved together.
The tokenised bond moved to the buyer.
The digital rupee moved to the seller.
At the same instant.
Sitharaman highlighted the experiment while urging the RBI to accelerate its CBDC work.
This concept is known in financial markets as delivery versus payment.
One asset moves only if the money moves.
The money moves only if the asset moves.
That sounds obvious.
But conventional financial systems often require multiple intermediaries, reconciliation processes and settlement periods.
Tokenisation combined with central-bank digital money could compress that process dramatically.
When both the asset and the money exist digitally on compatible infrastructure, settlement can potentially move from “after the trade” to “with the trade.”
That has major implications.
Tokenisation is the bigger story
Imagine an office building worth ₹500 crore.
Traditionally, ownership might sit within a company or fund.
Tokenisation theoretically allows that economic ownership to be represented digitally in much smaller units.
The same concept can potentially apply to:
government securities, corporate bonds, funds, commodities, invoices, deposits and certain real-world assets.
Each digital token can represent a legally defined economic claim.
Financial institutions around the world are experimenting with this model because tokenisation could make assets easier to trade, divide, transfer and settle.
But eventually every tokenised transaction hits the same problem.
You need money on the other side.
Sitharaman put the issue directly during her Global Fintech Fest remarks: experiments in tokenisation eventually encounter the question of what constitutes the money leg of the transaction.
That is where CBDCs become strategically interesting.
If the security becomes a regulated token and the money remains trapped in older settlement infrastructure, only half the financial system has been modernised.
The digital rupee could provide the other half.
Think of it as programmable cash
Another major difference between ordinary cash and a CBDC is programmability.
The RBI has already been testing programmable e₹.
Its own documentation explains that digital rupees can potentially be configured according to conditions such as expiry date, geography, merchant category, merchant identity or defined end use.
Consider a government subsidy intended only for agricultural inputs.
Ordinarily, money transferred into someone's bank account becomes general-purpose money.
With programmable CBDC, authorities could theoretically create funds that can be used only for the designated purpose.
That sounds restrictive — and if deployed broadly, it would raise legitimate questions about privacy, autonomy and government control.
But in limited applications, it can also solve practical problems.
The RBI has already experimented with e₹ in welfare and targeted-payment programmes.
Its 2025-26 annual report described pilots involving direct benefits, farmers and defined-use transfers. It also reported that Odisha's Subhadra Yojana had used the digital rupee as a payment channel for around 88,000 beneficiaries.
Reuters reported that the RBI plans to expand CBDC experimentation in government welfare payments and cross-border transactions.
This begins to show why e₹ is not simply another version of UPI.
UPI answers:
How do we transfer money?
CBDC can potentially answer:
What can the money itself do?
The digital rupee could work where internet connectivity doesn't
Cash has one property digital payments struggle to replicate.
It works when the network doesn't.
You can hand someone ₹100 during a power cut.
No server has to answer.
No mobile signal is necessary.
No payment gateway must be online.
If a digital currency is intended to behave like cash, offline functionality becomes extremely important.
The RBI has therefore been testing various offline approaches to e₹.
Its published CBDC documentation discusses methods using telecom connectivity and NFC-based transactions for environments where internet connectivity is limited or unavailable.
That could be particularly relevant in rural areas, disaster zones or places with unreliable connectivity.
Again, this does not necessarily kill UPI.
But it gives CBDC a potential use case that normal account-to-account payments find more difficult.
Then agentic AI enters the picture
The Global Fintech Fest discussion was not only about digital currencies.
The event's theme itself centred on agentic AI, tokenisation and quantum technology as emerging foundations of financial infrastructure.
Agentic AI represents an important shift.
Today's financial AI mostly helps humans make decisions.
Tomorrow's financial agents may increasingly execute those decisions.
An AI agent could potentially:
monitor household bills, move excess cash, purchase investments, compare insurance plans, pay suppliers, rebalance portfolios or manage corporate treasury positions.
It would not simply recommend an action.
It could take the action.
That creates enormous possibilities.
It also creates enormous risks.
Sitharaman described AI as a “double-edged sword”, noting that it can improve fraud detection while also enabling more automated and sophisticated cyberattacks.
And if autonomous AI systems begin transacting with tokenised assets, the characteristics of the underlying money become increasingly important.
Imagine an AI corporate-treasury agent buying tokenised bonds.
The trade might involve:
an AI agent initiating the order,
a token representing the bond,
a CBDC representing the cash,
and smart-contract infrastructure settling both instantly.
No human finance employee may need to manually execute each step.
That is the kind of financial architecture policymakers are beginning to anticipate.
Machine-speed finance creates machine-speed risks
The attraction is obvious.
What once took two days could take seconds.
But speed works both ways.
An erroneous instruction that once affected a few transactions could spread through automated markets immediately.
A compromised AI agent might initiate thousands of transactions before a person recognizes the problem.
A malicious smart contract could propagate damage rapidly.
A cybersecurity breach affecting programmable money could have consequences far beyond stolen passwords.
Sitharaman specifically warned that increasingly autonomous AI could accelerate fraud, operational errors and systemic risks.
That suggests the future financial system will require a new type of safety architecture.
AI agents may need transaction limits.
Some transactions may require human approval.
Financial institutions may need emergency kill switches.
Digital identities may need stronger authentication.
Programmable payments may need strict permissions.
And automated systems will need tamper-resistant audit trails.
The debate is therefore no longer simply about innovation.
It is about how much authority machines should receive over real money.
There is also a privacy question India cannot avoid
Cash is remarkably private.
A ₹500 note does not generate a centralised transaction record every time it changes hands.
Digital money can.
That creates one of the most sensitive policy questions surrounding CBDCs globally.
How much should the central bank know about individual transactions?
How much should commercial banks know?
Should small digital-rupee payments have cash-like privacy?
Can transactions be traced during criminal investigations?
Who can access that data?
Could programmable restrictions eventually be imposed on individuals?
The RBI has consistently positioned e₹ as the digital equivalent of cash rather than as a tool for surveillance.
But designing digital money with both strong privacy and regulatory traceability is technically difficult.
This trade-off will become increasingly important if retail e₹ ever moves beyond pilot scale.
CBDC adoption will depend not merely on whether it works.
People will need to trust it.
The digital rupee pilot still has a long way to go
There is another important reality.
Despite years of development, e₹ remains tiny compared with UPI.
Retail digital-rupee circulation actually declined from about ₹10.16 billion in 2025 to ₹7.71 billion in 2026, according to RBI figures cited by Reuters.
That does not necessarily mean the experiment is failing.
CBDCs remain pilots, and central banks are deliberately testing targeted use cases rather than pursuing transaction volume at any cost.
But the figures demonstrate the enormous adoption challenge.
Consumers already have UPI.
It works.
It is familiar.
Almost every merchant accepts it.
That creates a powerful question for the RBI:
What would convince an ordinary Indian to maintain an e₹ wallet as well?
Without a distinctive advantage, consumers have little reason to change behaviour.
That may explain why the most compelling CBDC applications are increasingly appearing outside everyday retail payments.
Wholesale e₹ may ultimately matter more than the consumer wallet
The digital rupee actually exists in two major forms.
There is retail CBDC — e₹-R, aimed at individuals and businesses.
And there is wholesale CBDC — e₹-W, intended primarily for financial institutions.
The wholesale version could eventually be far more consequential while remaining virtually invisible to ordinary consumers.
The RBI began its wholesale CBDC pilot in November 2022 with settlement of government securities and later expanded the experiment into interbank lending and other applications.
Why does that matter?
Because large financial institutions constantly move enormous amounts of money between themselves.
Banks settle securities trades.
They lend to each other.
Institutions exchange collateral.
Markets process corporate bonds and government debt.
Even modest improvements in these processes can translate into substantial economic savings.
If wholesale CBDC removes certain intermediaries, reduces collateral requirements and decreases settlement risk, the biggest transformation caused by the digital rupee may happen behind the scenes.
Millions of people might benefit without ever opening an e₹ app.
Cross-border payments could become the killer use case
International payments remain considerably less efficient than domestic UPI transfers.
A worker sending money home from overseas can face:
bank fees,
foreign-exchange spreads,
multiple intermediaries,
processing delays,
and limited transparency.
CBDCs offer a potential alternative.
If two countries' central-bank digital currencies can interact directly, cross-border settlement could theoretically become faster and cheaper.
India is already exploring bilateral CBDC arrangements with countries including Singapore and the UAE, according to the RBI and Reuters.
India has also been pushing the subject within BRICS.
Ahead of the September BRICS summit, New Delhi proposed greater interoperability between participating countries' CBDCs as a way to improve cross-border payments.
The idea, however, is technically and politically difficult.
Countries have different regulations.
Currencies are not freely interchangeable.
Anti-money-laundering requirements differ.
Central banks may not want foreign jurisdictions deeply connected to their monetary infrastructure.
And geopolitical trust is far more complicated than simply connecting two APIs.
Still, the potential is enormous.
A digital rupee connected directly with another central bank's digital currency could eventually make international payments feel more like domestic digital transfers.
This is not India's attempt to replace the dollar
CBDC discussions frequently become entangled with speculation about “de-dollarisation.”
That is particularly common around BRICS.
But those are different questions.
Creating direct digital settlement between two currencies does not automatically create a global reserve currency.
India's recent BRICS push has been framed primarily around making international transactions faster and more efficient, not replacing the U.S. dollar as the world's principal reserve currency. Reuters reported that India has specifically sought to distance its proposal from earlier ideas involving a common BRICS currency.
The near-term opportunity is much more practical.
Reduce settlement costs.
Reduce waiting time.
Simplify remittances.
Improve transparency.
That alone would be a significant achievement.
Meanwhile, UPI itself is entering a new phase
The timing of the CBDC debate becomes even more interesting because UPI's own economic model is changing.
India has moved to allow merchant charges on certain higher-value UPI transactions.
From October 15, 2026, a 0.4% merchant discount rate is set to apply to eligible merchant transactions above ₹2,000, with exemptions and special treatment for certain categories. Person-to-person transfers remain free.
The decision is controversial.
Retail groups have warned that merchants could discourage UPI payments or indirectly pass costs to customers.
Payment companies and banks, however, have argued for years that the ecosystem needs a sustainable revenue model.
This does not suddenly make e₹ a replacement.
But it creates an intriguing contrast.
UPI is a payment network with banks, apps and payment companies that ultimately need sustainable economics.
The digital rupee is sovereign money issued by the central bank.
As India's payment system matures, the economic relationship between these layers could become increasingly important.
Could e₹ payments eventually become invisible?
The most successful technologies often disappear into the background.
Most people do not think about TCP/IP when opening a website.
They don't think about clearing houses when swiping a card.
The same could eventually happen with digital currencies.
Imagine opening a payment app five years from now.
You scan a QR code.
The app decides that a normal bank-funded UPI payment is the best option.
Another transaction uses digital rupees.
A government benefit arrives as programmable e₹.
An offline merchant payment is settled locally.
An international payment routes through interoperable CBDC infrastructure.
From the user's perspective, there is still just one button:
Pay.
This is perhaps the most plausible future.
Consumers may never have to choose between “UPI” and “digital rupee.”
The financial system may choose the appropriate rail or monetary form underneath.
The larger shift is from digital payments to digital finance
India's first fintech revolution was about making payments digital.
The smartphone replaced cash for millions of daily transactions.
QR codes replaced card terminals.
UPI connected banks into a common network.
The next revolution could be deeper.
Assets themselves could become tokens.
Money itself could become programmable.
AI agents could operate financial accounts.
Settlement could become instantaneous.
Cross-border transfers could connect directly between digital currencies.
Financial transactions that currently involve multiple databases and institutions could increasingly occur on shared digital infrastructure.
Prime Minister Modi described technologies including agentic AI, tokenisation and quantum as opening new possibilities for the financial sector during the same Global Fintech Fest.
This is the environment in which the digital rupee suddenly starts making more sense.
Not as a replacement for a QR-code payment.
As infrastructure for a financial system that may look dramatically different from today's.
India may have built UPI first — and digital money second
There is an interesting strategic advantage in India's approach.
Many countries began CBDC discussions while still lacking a truly dominant instant-payment network.
India already solved much of the payments problem.
UPI gave the country ubiquitous QR codes, digital identities, connected banks, mobile-payment habits and enormous transaction volumes.
The RBI can therefore develop e₹ on top of an economy already comfortable with digital payments.
It does not need to convince Indians that phone-based payments are useful.
That battle has already been won.
Instead, the question is whether the digital rupee can offer capabilities that bank-account payments cannot easily provide.
Offline cash-like transactions.
Programmability.
Tokenised-asset settlement.
Wholesale financial-market settlement.
Cross-border CBDC transactions.
And potentially machine-to-machine payments in an AI-driven economy.
Those are much more interesting challenges than simply asking consumers to download another wallet.
So, will India eventually pay without UPI?
In some situations, almost certainly.
The digital rupee already allows direct wallet-based transfers.
Future offline CBDC systems could potentially operate without conventional UPI connectivity.
Tokenised financial markets may settle directly in wholesale e₹.
Cross-border CBDC networks could bypass existing retail-payment rails entirely.
But none of this means UPI is heading for extinction.
The evidence points toward something more nuanced.
UPI may remain India's dominant payment interface while the digital rupee becomes an increasingly important form of money beneath and beside it.
One may become the road.
The other may become one of the vehicles travelling on it.
And sometimes, the digital rupee may take an entirely different road.
UPI solved the problem of moving rupees digitally. The digital rupee asks a more radical question: what happens when the rupee itself becomes software?
That is why Sitharaman's call for the RBI to sharpen its capabilities deserves attention.
The e₹ pilot is no longer merely an experiment about replacing paper notes with pixels.
It is becoming part of a much bigger contest to define the financial infrastructure of the AI era.
The first phase of India's fintech revolution put a QR code on almost every shop counter.
The next one could put programmable central-bank money behind it.
And when that happens, Indians may still scan exactly the same QR code they use today.
They simply may not realize how radically the money underneath has changed.
