In a bid to strengthen its foreign trade capabilities with nations lacking U.S. dollar reserves, the Reserve Bank of India (RBI) is actively engaging in discussions with central banks from 18 other countries. The primary focus of these talks is to explore the feasibility of cross-border payments using India's Central Bank Digital Currency (CBDC), commonly referred to as the "digital rupee."
Reports have surfaced, citing statements by RBI Governor Shaktikanta Das, highlighting the ambitious plans surrounding India's CBDC and its potential impact on foreign trade infrastructure. Governor Das emphasised the swift and cost-effective nature of cross-border payments facilitated by the digital rupee. Furthermore, he mentioned the ongoing dialogues with central banks that have already introduced or are in the process of introducing CBDCs.
Since July 2022, several banks from 18 countries have established rupee vostro accounts, underscoring the growing international interest in India's CBDC. During a public appearance, Governor Das elucidated India's eagerness to offer the digital rupee as a payment method for countries facing challenges procuring U.S. dollars for importing Indian goods. The digital rupee aims to address the scarcity of dollar reserves in those markets, presenting an alternative avenue for trade transactions.
India's decision to promote the digital rupee for foreign trade dealings stems from its objective to safeguard its US dollar reserves. The country has experienced crises in the external sector in the past, particularly during the "taper tantrum" period. To prevent a recurrence of such situations, the RBI seeks to attract foreign inflows and mitigate the risks associated with overdependence on US dollar reserves.
The discussions with global central banks signify India's commitment to harnessing the potential of CBDCs and advancing the digitisation of financial transactions. By exploring cross-border CBDC payments, India aims to bolster its foreign trade capabilities, enhance efficiency in cross-border transactions, and establish the digital rupee as a viable alternative for international trade settlements.
While these discussions are still ongoing, the proactive stance of the RBI indicates a strong push towards embracing the transformative power of digital currencies in facilitating global commerce and shaping the future of cross-border payments.
The writer is the founder at yMedia. He ventured into crypto in 2013 and is an ETH maximalist. Twitter: @bhardwajshash