Reserve Bank of India Expands CBDC Use for Cross-Border Payments

Key Takeaways

• The move aims to enhance the speed and efficiency of international transactions 
• The RBI is not yet looking to introduce a full-scale consumer-facing version of the digital rupee

The Reserve Bank of India (RBI) is advancing its cross-border payments initiative by incorporating central bank digital currencies (CBDCs) for settlements. As per the report, the move aims to enhance the speed and efficiency of international transactions while expanding India’s payment network to new regions, including the United Arab Emirates (UAE), in addition to its existing agreements with Sri Lanka, Bhutan, and Nepal.

India’s CBDC development began in 2020, with pilot testing initiated in 2022. The digital rupee, which is currently used for bank-to-bank transactions, had accumulated about 5 million users by August 2024. While the RBI continues to refine the digital rupee, it is not yet looking to introduce a full-scale consumer-facing version. Governor Shaktikanta Das has emphasized the importance of ensuring the system is robust before considering wider public use.

As part of its ongoing efforts, the RBI is also focusing on the interoperability of CBDCs. The goal is to create a “plug-and-play” system that allows for seamless transactions between different countries and digital currency systems. Governor Das outlined this initiative during the Global Conference on Digital Public Infrastructure and Emerging Technologies, highlighting that interoperability could improve the efficiency and scalability of CBDC programs worldwide.

Additionally, the RBI is exploring offline solutions for the digital rupee, aiming to address challenges faced in rural areas with limited connectivity. The move reflects India’s efforts to ensure that the CBDC remains accessible across various regions and encourages broader adoption, even in areas with less reliable internet infrastructure.

While the RBI’s initiative has the potential to enhance the efficiency of cross-border payments and financial transactions, it has drawn criticism from some privacy advocates.

Concerns have been raised about the possible implications of a centrally controlled digital currency, with critics warning that such systems could lead to privacy erosion and increased government surveillance. These concerns are part of a larger global discussion as 134 countries, including all G20 members, are currently exploring CBDC technologies.

In October, Reserve Bank of India Governor Shantikanta Das stated that cryptocurrencies are huge risks to financial stability, and monetary stability, noting that it might create a situation where the central bank may lose control of the money supply in the economy.