India’s “digital Rupee” dream is inching closer to its outcomes as evident from the various advancements by the central bank. Reportedly, the Reserve Bank of India (RBI) is engaging with several nations regarding the scope of cross-border transactions in the digital Rupee.
In a recent interview, RBI Governor, Shaktikanta Das, revealed several announcements regarding the Indian central bank digital currency (CBDC). While a lot of the spilled details were a repetition of news that have already been stated, the information on India’s focus to test cross border transactions in CBDC was an interesting one.
Reportedly, the RBI has held numerous discussions with its counterparts from at least 18 nations in the context of cross border transactions in CBDCs.
According to local media reports, banks from these 18 countries have already opened Rupee vostro accounts since July 2022. A vostro account is a bank account held by a domestic bank for a foreign bank, denominated in the domestic currency of the former. The Rupee Vostro Account specifically holds the foreign entity’s deposits in Indian rupees at the Indian bank.
Notably, the central bank governor has repeatedly laid emphasis on the maximising potential that the CBDCs have to offer to enhance the cross border transactions. In his public appearance earlier, Das had explained India’s eagerness to provide its CBDC as a payment method for importing Indian goods for countries struggling with a supply of United States Dollars. He said:
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.
Reportedly, Das had also revealed another motive behind the push for CBDCs in context of international transfers. Notably, a big reason for betting hard on the digital Rupee for foreign trade deals is the intent to save the U.S. Dollar reserves of the country.
In the ‘taper tantrum’ period, suddenly, India had an external sector crisis, and the RBI had to attract foreign inflows by offering some incentives. We did not want to have a repeat of that situation.
Governor Das, a strong proponent of CBDC adoption over cryptocurrencies, has often presented his views over the topic. As reported by Todayq News, just last week during a speech in London, he had again emphasized the importance of foreign trade infrastructure for the digital rupee, which was set to reach 1 million users domestically by the beginning of July.
At that time, Das had said that the CBDC is going to be the future money and explained that cross-border payments will also become much quicker, more seamless and very cost-effective. That is another area where a lot of attention needs to be given. It was also the time when the central bank governor had hinted at the ongoing talks and stated:
We are constantly in dialogue with other central banks that have introduced or are introducing CBDCs.
As CBDCs gain popularity and see more involvement from the nations, the fifth largest economy in the world, India is leading the development phase in all optimism. Notably, the nation has been swift and focused on the process and has launched the phases as planned.
In November last year, the RBI had first launched the wholesale digital Rupee pilot followed by the retail pilot in February this year. The pilot which began in 2022 involved four national banks initially. Subsequently, Indian government expanded the pilot program to nine more banks, including State Bank of India, Bank of Baroda, Union Bank of India, HDFC Bank, ICICI Bank, Kotak Mahindra Bank, YES Bank, IDFC First Bank, and HSBC Bank.
At that time, the Indian finance minister had announced that the pilot program had more than 15.8 million digital rupees in circulation as of February 28, 2023. Considering the India’s large population and the significant challenges it brings to table including the digital divide, the government has also considered the idea of offline CBDC and the potential challenges to it.
Nonetheless, with the growing fame of CBDCs, India is trying to leaving no stone unturned to establish itself as the leader. In March, it announced an agreement with the Central Bank of the United Arab Emirates to study a CBDC bridge for trade and remittances. This explains us all the efforts that India is making in its CBDC journey.