Context
The Reserve Bank of India (RBI) is discussing with BRICS countries ways to increase the use of the Indian rupee in cross-border trade and payments. Proposals include linking domestic payment systems and exploring interoperability of Central Bank Digital Currencies (CBDCs).
Explanation
- BRICS is an intergovernmental grouping of major emerging economies promoting cooperation in economic, financial and developmental matters.
- Cross-border payment systems enable transfer of funds between residents of different countries; conventional systems may involve correspondent banks, increasing costs and settlement time.
- UPI (Unified Payments Interface), developed by NPCI, enables instant bank-to-bank digital payments and is increasingly being linked with payment systems abroad.
- CBDC is sovereign digital money issued by a central bank; RBI’s CBDC is the Digital Rupee (e₹), distinct from private cryptocurrencies.
- Linking payment systems/CBDCs can improve interoperability, settlement speed and transaction costs.
- Greater settlement in local currencies can reduce dependence on intermediary currencies in international trade.
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CBDC Interoperability: RBI, BRICS and Payment Reform