RBI, US, and Hong Kong Deliberate on CBDCs for Trade Settlements

The Reserve Bank of India (RBI) is actively engaging in discussions with its international counterparts, including the United States and Hong Kong, as well as the Society for Worldwide Interbank Financial Telecommunications (SWIFT), to explore the use of Central Bank Digital Currencies (CBDCs) for cross-border digital bank payments. This collaboration is part of a broader effort to understand the feasibility and implementation of fast, low-cost digital cross-border financial transactions using CBDCs.

CBDCs are envisaged to revolutionize cross-border settlements, especially in the context of transactions facilitated by Swift. The traditional method involves routing funds through banks using the Swift platform, whereas CBDCs could enable direct settlements between parties. This change could offer significant advantages in terms of speed and cost efficiency. The RBI’s internal working group is thoroughly studying the technological aspects necessary to create a roadmap for direct cross-border transactions between countries. India has recently entered into agreements for real-time cross-border fund transfers with countries like Singapore and the UAE, indicating a shift towards more efficient transaction methods.

Additionally, the RBI is in talks with at least 18 other nations to promote the use of CBDCs for cross-border payments. RBI Governor Shaktikanta Das emphasized the importance of foreign trade infrastructure for the digital rupee and its potential to enhance international transactions’ speed, seamlessness, and cost-effectiveness.

Moreover, the RBI has partnered with the United Arab Emirates to conduct joint studies on CBDC usage for settling international payments. The substantial economic resources of both countries, coupled with a significant flow of international remittances, make them ideal for exploring this new-age technology. The RBI has already initiated wholesale and retail CBDC pilots, exploring their use in various financial transactions, including government bond settlements and short-term lending.

In a broader context, a recently concluded experiment by the Bank for International Settlements (BIS) found that CBDCs can effectively carry out international transactions between financial institutions. The “Project Jura” experiment, conducted by the central banks of France and Switzerland along with the BIS Innovation Hub, tested the effectiveness of wholesale CBDCs in cross-border settlements. This project demonstrated that wholesale CBDCs could safely and efficiently settle transactions, potentially reducing the cost of international transactions and improving settlement speed.

These discussions and experiments represent a significant step in the global banking sector’s exploration of CBDCs and their potential impact on traditional payment systems. The collaborative efforts between the RBI and its international counterparts, along with the ongoing research and pilot projects, are crucial in determining the future role of CBDCs in global finance​​​​​​.



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