India is joining forces with neighboring nations to develop its cross-border payment system. Per a Bloomberg report, the Reserve Bank of India (RBI) Deputy Governor T. Rabi Sankar revealed plans to integrate India’s mobile payment infrastructure with other countries during a conference in Cebu, Philippines.
As a part of the effort, India is collaborating with neighboring nations like Sri Lanka, Bhutan, Nepal, and some other nations while discussions are underway for the possible inclusion of the United Arab Emirates.
The RBI is also collaborating with central banks from the ASEAN region, which includes Southeast Asian nations such as Vietnam, to develop a regional instant payment platform.
According to the report, the cross-border payment platform will likely hinge on leveraging its CBDC, the Digital Rupee.
The RBI views CBDCs as a transformative tool for cross-border payments that can reduce cost and time.
India’s focus on CBDCs
India has positioned itself as a global leader in CBDC development, conducting pilot programs since 2022.
The country’s push for a cross-border payments platform gained momentum during its G20 presidency, where it prioritized improving the global payment infrastructure.
Initially launched as a bank-to-bank solution, the RBI is currently assessing the security implications of such a technology, including its potential impact on bank deposits and even monetary policy transmission.
The RBI has formed a Committee on Payments and Market Infrastructures to address issues like anti-money laundering and counter-terrorism financing compliance, which are vital for the secure deployment of CBDCs.
By August 2024, the Digital Rupee pilot program had managed to amass five million users, and the RBI aims to hit a milestone of one million daily transactions by December 2024.
Plans to make CBDCs interoperable with global systems are in progress, with a proposed “plug-and-play” model designed to facilitate seamless transactions across borders, as previously suggested by Das.
Das has also emphasized the need to develop offline solutions to extend the Digital Rupee’s reach in areas with limited internet access, and efforts are already underway.
Additionally, the RBI intends to integrate the state-backed cryptocurrency with the country’s Unified Payments Infrastructure (UPI), a real-time payment system that processes over 500 million domestic transactions daily.
Yet, some officials have also pointed to risks associated with CBDCs. Earlier this year, Deputy Governor Michael Debabrata Patra warned that CBDCs might be misinterpreted as “safe havens” during financial crises, potentially leading to bank runs and impacting banking stability.
In line with this cautious approach, Sankar has clarified that India doesn’t plan to rush the rollout of the CBDC to retail users, citing the need to assess the impact of the technology before setting a timeline.
No clarity for crypto
While India pushes forward with CBDC development, the nation has shown little interest in promoting the use of private cryptocurrencies despite facing industry backlash over its stiff 30% tax and 1% TDS rule.
Some officials have even suggested the possibility of a complete ban, while others have advocated for a regulated approach as opposed to an outright ban.
Last month, reports emerged that lawmakers were even considering banning private cryptocurrencies over concerns regarding the misuse of cryptocurrencies, prompting a national dialogue on the future of digital transactions in India.
Earlier reports suggested that India is also working on a crypto policy discussion paper after discussions with key industry players.
The paper was initially set for publication in September but has yet to surface.
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