India negotiates cross-border digital currency payments
10 Jul 2023
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Reserve Bank of India (RBI) has been in discussions with its counterparts from at least 18 other countries on cross-border payments using its central bank digital currency (CBDC), the “digital rupee.”
RBI governor Shaktikanta Das has made several announcements on the RBI ’s ambitious foreign trade plans for India using the CBDC.
Das, has, on various occasions, emphasised the importance of foreign trade infrastructure for the digital rupee, which was set to reach 1 million users domestically by the beginning of July 2023.
CBDC would also make cross-border payments faster, more seamless and very cost-effective he points out. “We are constantly in dialogue with other central banks that have introduced or are introducing CBDCs.”
Reports say that banks from 18 countries have already opened rupee vostro accounts since July 2022.RBI also has expressed its eagerness to provide the CBDC as a payment method for importing Indian goods for countries struggling with dollar shortage.
“In India, we have no shortage of dollars, but in some other markets, due to a shortage of dollars, they are unable to do imports.”
Also, the use of digital rupee for foreign trade deals would help save the US dollar reserves of the country:
In fact, according to the governor, RBI had to attract foreign inflows by offering some incentives to tide over a brief period of a sudden external sector crisis.
The RBI launched its wholesale digital rupee pilot project in November 2022 and its retail digital rupee pilot project in February 2023. In March, it announced an agreement with the Central Bank of the United Arab Emirates to study a CBDC bridge for trade and remittances.
However, the total trade volumes in local currency have remained negligible. Reports citing unidentified sources say the trade volumes in rupees have only reached around Rs1,000 crore ($120 million) so far.
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