The Reserve Bank of India (RBI) is engaging in discussions with central banks from 18 countries to explore the potential of cross-border payments using a digital version of the Indian rupee, known as the “digital rupee.” This initiative aims to enhance India’s foreign trade capabilities, particularly with nations that face challenges related to U.S. dollar reserves.
As reported in the Economic Times on June 27, the RBI Governor, Shaktikanta Das, has been vocal about the importance of establishing robust foreign trade infrastructure for the digital rupee. In a speech delivered in London, Das highlighted the benefits of cross-border payments becoming quicker, more streamlined, and cost-effective through the adoption of central bank digital currencies (CBDCs). The RBI is actively engaging with central banks that have already introduced or are planning to introduce CBDCs.
Since July 2022, banks from 18 countries have started opening rupee vostro accounts, signaling early interest in utilizing the digital rupee for international transactions. In another public appearance, Das emphasized India’s intention to offer its CBDC as a payment method for importing Indian goods to countries facing limited availability of U.S. dollars. This strategic move not only facilitates foreign trade but also helps conserve India’s dollar reserves, aiming to avoid a repeat of past external sector crises.
The RBI has made significant progress in implementing CBDC initiatives. It launched a wholesale digital rupee pilot project in November 2022 and followed up with a retail digital rupee pilot project in February 2023. Additionally, in March, the RBI announced a collaboration with the Central Bank of the United Arab Emirates to explore a CBDC bridge for trade and remittances.
By leveraging the digital rupee for cross-border payments, India aims to strengthen its economic ties with partner countries and alleviate challenges associated with traditional currency exchange mechanisms. The potential benefits include enhanced efficiency, reduced transaction costs, and increased access to Indian goods.
As India embraces CBDC technology, it joins a global movement toward exploring and implementing digital currencies as a means of promoting financial inclusivity, facilitating international transactions, and advancing economic growth.