Advancing Cross-Border CBDC Payments: India Engages in Talks with Global Central Banks

The Reserve Bank of India (RBI) has initiated discussions with central banks from approximately 18 countries regarding the potential implementation of cross-border payments using the “digital rupee.” This ambitious foreign trade plan for the Indian central bank digital currency (CBDC) was reported by the Economic Times on June 27, citing statements made by RBI Governor Shaktikanta Das.

During a speech in London, Das highlighted the significance of foreign trade infrastructure for the digital rupee, which was expected to reach one million domestic users by the start of July. He emphasized the potential for cross-border payments to become faster, more seamless, and cost-effective, stressing that the RBI is actively engaged in dialogue with other central banks that have already introduced or are in the process of introducing CBDCs.

As per the report, banks from 18 countries have already opened rupee vostro accounts since July 2022. In another public appearance, Das explained India’s eagerness to offer its CBDC as a payment method for countries facing challenges with the supply of U.S. dollars, particularly for importing Indian goods. The objective is to address the shortage of dollars in some markets and facilitate smoother trade transactions.

Another motivation behind India’s focus on the digital rupee for foreign trade deals is the intention to preserve the country’s dollar reserves. Following the period of the “taper tantrum,” when India experienced an external sector crisis, the RBI aimed to attract foreign inflows by providing incentives. The goal is to avoid a similar situation in the future.

The RBI initiated a wholesale digital rupee pilot project in November 2022, followed by a retail digital rupee pilot project in February 2023. Additionally, in March, the RBI announced a partnership with the Central Bank of the United Arab Emirates to explore a CBDC bridge for trade and remittances.

By engaging in collaborative discussions with global central banks, India aims to pave the way for cross-border CBDC payments, revolutionizing the efficiency and cost-effectiveness of international transactions involving the digital rupee.

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