- July 8, 2023
- Posted by: [email protected]
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The Reserve Bank of India (RBI) has engaged in negotiations with central banks from at least 18 other countries to explore the potential of cross-border payments utilizing its central bank digital currency (CBDC), commonly known as the “digital rupee.” The RBI’s ambitious plans for India’s CBDC in the realm of foreign trade were reported by the Economic Times on June 27, highlighting statements made by RBI Governor Shaktikanta Das.
During a speech in London in June, Das emphasized the significance of foreign trade infrastructure for the digital rupee, which was expected to have reached 1 million domestic users by the beginning of July. He stated, “But cross-border payments will also become much quicker, more seamless, and very cost-effective. That is another area where a lot of attention needs to be given. We are constantly in dialogue with other central banks that have introduced or are introducing CBDCs.”
According to the report, banks from 18 countries have already opened rupee vostro accounts since July 2022. In another public appearance, Das elaborated on India’s eagerness to offer its CBDC as a payment method for countries struggling with a shortage of United States dollars when importing Indian goods. He explained, “In India, we have no shortage of dollars, but in some other markets, due to a shortage of dollars, they are unable to do imports.”
One of the driving factors behind India’s strong push for the digital rupee in foreign trade deals is the desire to conserve the country’s U.S. dollar reserves. Das stated, “In the ‘taper tantrum’ period, suddenly, India had an external sector crisis, and the RBI had to attract foreign inflows by offering some incentives. We did not want to have a repeat of that situation.”
The RBI initiated its wholesale digital rupee pilot project in November 2022 and followed it with the launch of the retail digital rupee pilot project in February 2023. Furthermore, in March, the RBI announced a collaboration with the Central Bank of the United Arab Emirates to explore the development of a CBDC bridge for trade and remittances.
By engaging in discussions with other central banks and establishing CBDC-based cross-border payment channels, India aims to enhance its potential for foreign trade with nations that lack substantial reserves of U.S. dollars. The introduction of the digital rupee as a viable payment solution for international transactions not only promises to expedite and streamline cross-border payments but also strengthens India’s position in global trade by diversifying its currency options and reducing reliance on the U.S. dollar. These efforts align with India’s broader economic objectives and its aspiration to establish itself as a prominent player in the digital currency landscape.
