Central Bank Digital Currency (CBDC), Bank Deposits, and Digital Payments: First Evidence from a Live Retail CBDC

We present the first empirical evidence on how a live retail central bank digital currency (CBDC) affects bank funding, lending, and payments, using the rollout of India’s digital rupee. Exploiting quasi-experimental variation from the Reserve Bank of India’s staggered authorization of lead banks and centrally coordinated CBDC marketing campaigns at a large public-sector bank, we show that CBDC eligibility reduces retail deposits by 2.7%, concentrated in liquid savings accounts, while illiquid term deposits remain unchanged. Credit falls initially but quickly recovers, consistent with banks adjusting their funding mix. On the payments side, CBDC crowds out deposit-backed digital rails rather than cash usage. Early adoption is skewed toward wealthier, uninsured, and more educated depositors. A simple sufficient-statistics framework implies that the net welfare effect is positive, with household convenience and safety gains outweighing the costs of lost deposit franchise value, temporary credit contraction, and more expensive wholesale funding.