RBI Explores Cross-Border Payments with Digital Rupee, in Talks with Central Banks of 18 Countries

The Reserve Bank of India (RBI) is engaging in discussions with central banks from around 18 other countries to explore the potential of cross-border payments using a digital form of the Indian currency, known as the "digital rupee".

The news regarding RBI's ambitious plans for the central bank digital currency (CBDC) in foreign trade was reported by the Economic Times on June 27. The article highlights the statements made by RBI Governor, Shaktikanta Das, regarding the significance of foreign trade infrastructure for the "digital rupee", which was projected to have one million domestic users by the beginning of July.

Das also emphasized the potential for cross-border payments to become faster, more seamless, and cost-effective with the implementation of the CBDC. The RBI is actively engaging in dialogue with other central banks that have already introduced or are in the process of introducing their own CBDCs.

Since July 2022, banks from 18 countries have reportedly established rupee vostro accounts, as stated in the report. In a separate public appearance, Das expressed India's keenness to offer its CBDC as a payment method for countries that face challenges with the supply of U.S. dollars when importing Indian goods.

Das highlighted the fact that India does not face a shortage of dollars but understands the difficulties faced by other markets. Another significant motivation behind promoting the digital rupee in foreign trade transactions is to preserve the country's dollar reserves.

The aim is to avoid a repeat of the external sector crisis that occurred during the "taper tantrum" period, where India had to attract foreign inflows by providing incentives.

The RBI initiated a wholesale digital rupee pilot project in November 2022, followed by 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 the potential of a CBDC bridge for trade and remittances.