The balancing act: cash, digital & CBDC in Asia

With 48 countries and over 2,300 languages spoken, Asia is as culturally diverse as it is geographically vast – home to roughly 60% of the global population. Within its borders, you’ll find three of the world’s five largest economies – China, Japan, and India – alongside some of its least economically developed nations. It’s therefore of little surprise that such diversity is mirrored in Asia’s payment landscape, where some of the world’s most advanced digital payment methods are thriving alongside a deep-rooted reliance on cash.

In 2024, digital payments accounted for 59% of point-of-sale (POS) transactions across the Asia-Pacific (APAC) region. Yet, cash is still indispensable, especially in countries like the Philippines (41%) and Indonesia (38%). While infrastructure, financial literacy, and inclusion are factors in cash’s endurance, cultural factors also play a role; in Japan, the world’s fourth-largest economy, cash transactions still account for 39% of POS payments.¹

Against this backdrop, many countries are also exploring central bank digital currencies (CBDCs) as a complement to physical cash, preserving central bank monetary sovereignty and enhancing financial inclusion among their unbanked populations.

In the latest installment of our global payment series, Spotlight shines the light on two countries that epitomize Asia’s diverse payments landscape – India and Indonesia – and how digital payments and cash usage continue to coexist and evolve in these markets, while CBDC development continues to evolve.

India’s digital leap and the cash paradox

While countries all over Asia are embracing digital payment solutions, few can boast success on the scale of India. In less than a decade since the Unified Payments Interface (UPI) was introduced in 2016, India has transformed from a cash-heavy society to a global leader in digital payments. Before UPI was launched, cash accounted for around 78% of point-of-sale (POS) transactions in India; today UPI dominates with 58% of POS transactions – and it’s expected to rise to 76% by 2030.²

That does not mean UPI has replaced cash. Far from it, in fact. While cash has lost its dominant share of POS transactions, the total volume of cash in circulation continues to rise at 4% each year, with 140 billion notes currently in circulation. This duality reflects the diverse needs of India’s vast population and geography. 

“If you go to tier-one cities like Mumbai, Bengaluru, or Delhi, you will see UPI payments everywhere,” says Suresh M S, Head of Sales at G+D India. “But once you head out to smaller cities and in rural areas, cash still very much dominates.” The reasons for this paradox are easily explained. 

The further away from bustling urban centers you go, the more likely you are to encounter infrastructure obstacles to offering digital payments. Economic realities are also a factor: many small vendors and daily wage earners prefer to receive and spend cash because of its convenience for small day-to-day purchases especially in rural areas. Cash is simply more practical. Digital literacy and financial inclusion are also challenges that have traditionally excluded rural populations from the digital ecosystem, though India’s Aadhaar system has driven progress on that front.

Introduced in 2009, the Aadhaar system is a nationwide digital ID program that assigns a unique 12-digit identification number to citizens based on biometric and demographic data. It enables banks and financial institutions to quickly verify identities, dramatically simplifying the process of opening bank accounts and accessing financial services for millions of previously unbanked citizens. 

The Aadhaar system and UPI are examples of the great leaps India has taken to develop its infrastructure and economy to improve financial inclusion across this vast country. Despite this, cash will continue to prevail – as the continued growth in notes in circulation demonstrates. 

Recognizing this reality, the Reserve Bank of India (RBI) is investing significantly over the next five years to revamp its currency management infrastructure and ensure adequate storage and handling capacity, with the volume of banknotes in circulation set to continue rising³ – the clearest signal that cash is going nowhere in India. Beside securing access to cash for everyone, the project’s other stated goals include enhancing operational efficiency, boosting security, and improving sustainability.

Indonesia: building a digital future while banking on cash

It is a similar story across the Bay of Bengal in Indonesia. Indonesia is an archipelago of more than 17,000 islands, making for a unique set of geographical and infrastructural challenges when serving the country’s 280 million citizens with reliable and accessible payment options.

Walk around major urban areas like Jakarta and you’d be forgiven for thinking cash is obsolete, such is the prevalence of cashless alternatives such as card payments, digital wallets like GoPay, OVO, and Dana, or Bank Indonesia’s BI-FAST and QRIS QR code payment systems. These central-bank-developed systems are expected to become the dominant payment method nationwide by 2030⁴ (currently they are second only to cash). According to its Payment System Blueprint for 2025, Bank Indonesia is also developing its own UPI system⁵ – inspired by the success in India.

However, as in India, this digital evolution only tells half the story. Circumstances quickly change when you head to more rural regions. “If you leave the big cities, cash is still king,” says Peter Schermaul, Sales Director at G+D Indonesia, who cites familiar reasons for cash’s continued usage: convenience, infrastructure, and financial inclusion challenges. “There is also a trust problem. Many people in rural areas simply do not trust digital payments yet.”

The country’s unique geography is an obstacle for both cash and digital systems. While internet coverage has improved significantly, millions of Indonesians remain disconnected from the internet, excluding them entirely from the digital payment ecosystem. There are also 83.1 million unbanked citizens – almost 30% of the population.⁶ For these people, cash is the only option.

This reality presents somewhat of a conundrum for Bank Indonesia, which must balance its digitalization ambitions with its obligation to ensure efficient cash circulation. “The central bank has huge costs every year bringing money to and from all the islands,” says Schermaul. “Reducing is not an option. If you stopped cash, people wouldn’t be able to buy food.”

Bank Indonesia relies on a delegated mode for cash distribution. While each province has its own central bank branch office, some islands are located over 2,000 km away (almost the equivalent distance of London to Athens) from the nearest branch office. In these locations, cash is distributed by authorized commercial banks so local populations always have access to cash.

The long road to CBDC adoption

Another pillar of Indonesia’s digital road map is the development of a CBDC – the digital rupiah – which is currently in its second development phase. The Reserve Bank of India is also running a pilot CBDC program – the digital rupee – mirroring a broader trend across Asia and beyond. The primary motivations for these pilots vary between developed and emerging markets however, across the board CBDCs are viewed as strategic tools for protecting monetary sovereignty, reducing the dependence on international payment providers, and improving financial inclusion – particularly in countries with significant unbanked populations.

The Hong Kong Monetary authority (HKMA) is a pioneer in CBDC development, having recently entered the second phase of its e-HKD pilot in late 2024 to explore settlement of tokenized assets, programmability, and offline payments, while Thailand’s central bank, the Bank of Thailand (BOT), successfully completed its CBDC pilot in 2023. Both central banks used G+D’s Filia^® retail CBDC solution to test feasibility and gather valuable insights. 

Despite the pilot’s success in Thailand, the BOT has emphasized that retail CBDCs remain a long-term consideration and is proceeding carefully, factoring in feedback from both the private sector and broader society.⁷ This reflects a wider sense of caution among central banks when it comes to retail CBDC implementation.

While many of the technical challenges of CBDC development have been successfully addressed in recent years, unlocking the full potential of widespread retail CBDC adoption hinges on increasing public awareness and engagement. The first issue is a general lack of awareness. In India, for example, the public “doesn’t see the value of a CBDC because UPI already does the job exceptionally well,” according to Suresh. 

The next challenge is legislative. “The reality is that establishing the appropriate regulatory framework for retail CBDCs is a complex process that takes considerable time,” according to Polly Bäumler, Regional Director Business Development CBDC, G+D.

As a result, many central banks, including Bank Indonesia, are focusing their efforts on developing wholesale CBDCs (wCBDCs) to streamline interbank settlements and cross-border transactions. This approach generally has fewer regulatory challenges because wCBDCs operate within existing institutional frameworks and don’t require consumer protections or public-facing infrastructure. It’s a perfect testing ground before moving toward retail adoption.

Collaboration: where public- and private-sector players can come together

However, this doesn’t mean central banks should take a back seat in payment innovation until CBDCs are ready to go mainstream. “In the meantime, there are already so many great payment instruments in place that people trust and use,” says Bäumler. “By recognizing their complementary strengths, central banks should explore ways to support and collaborate with the private sector to deliver retail payment solutions that are inclusive, accessible, and secure for all citizens.”

One area ripe for this kind of collaboration is offline payments. Though recent technological developments demonstrate the feasibility of offline payments – a breakthrough for CBDC development – such an offering is not particularly lucrative for private providers. “The question of how to sustainably deliver offline capabilities remains,” Bäumler notes. “Private players face challenges to offer offline payments from a business perspective, yet they are crucial for financial inclusion, especially in underserved areas. That’s where central banks can step in – a mandated effort to integrate offline capabilities into trusted systems can deliver a public good that enhances resilience and inclusion.”

In Indonesia, several digital wallet providers are exploring offline functionality. However, any rollout should come with central bank involvement and regulatory support. India’s Aadhaar system is a real-world example of this kind of collaboration in action. While developed as a government-backed biometric digital ID, Aadhaar has allowed private banks and fintechs to onboard millions of previously unbanked citizens.

Like the cash vs. digital debate, it’s not a question of either-or. Both have their place in Asia’s diverse payment landscape. The key is to combine the best of both – the reach and innovation of private players, with the trust and regulatory oversight of central banks – to drive financial inclusion and deliver payment experiences that serve the needs of the region’s vast population.

Published: 01/07/2025