Barriers to the implementation of Central Bank Digital currency: an ISM and MICMAC analysis approach

In the digital era, the growth of fintech is exceptional in India, and the Central Bank Digital Currency (CBDC) is emerging as a sovereign digital currency and becoming an alternative for physical cash. The CBDC has gained interest because it shares certain characteristics with cryptocurrencies like security, anonymity, and transparency. While most of the central banks are exploring the high growth potential of CBDC, its implementation remains difficult due to certain structural barriers. The public in India faced technical and operational challenges during the transition phase of physical currency to digital currency, i.e. digital movement of UPI digital payments. The aim of this study is to identify and structure the interrelated barriers to the successful implementation of CBDC in India. It employs Interpretive Structure Modelling (ISM) and MICMAC analysis to achieve the set objective. Fifteen barriers were identified from extensive literature review and expert insights. Expert opinions were obtained to determine which barrier influences others. A five-level structured model was formed using the ISM technique, reflecting the interrelations among the barriers. MICMAC analysis was used for technical insight into the driving and dependence power of the barriers in the ISM model. The results show that the main driving barriers to CBDC implementation are Regulatory and Legal Framework. Technological infrastructure, interoperability, implementation costs, institutional capacity, and user centric factors, namely privacy, trust, cybersecurity, and digital literacy, are influenced by these barriers (regulatory and legal framework). Furthermore, MICMAC analysis identifies and categorizes the variables according to their driving and dependence power. The study enriches the existing literature on ‘Adaptation and Challenges for CBDC’. The findings shed light on insights for Reserve Bank of India (RBI), commercial banks, policymakers, and financial institutions in optimizing regulatory and technological strategies for prominent CBDC implementation. The study facilitates the formulation of targeted policies and information dissemination efforts to improve public acceptance of CBDC in India.