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India looking to wholesale, cross border CBDC – reports

digital rupee cbdc currency

The Reserve Bank of India’s deputy governor T Rabi Sankar believes that domestic payments are pretty efficient, but cross border payments are “stuck in the last century.” He expressed an interest in using central bank digital currency (CBDC) to address challenges but did not explicitly say India’s digital rupee project would prioritize cross border payments. 

In contrast, another report two weeks ago citing insider sources stated that wholesale CBDC would be the first priority, followed by retail CBDC. The central bank has said it will roll out a digital rupee by March 2023 in a phased manner.

The case for CBDC cross border payments

Talking about international payments, Rabi Sankar said, “CBDCs, in my view, is the most efficient answer to this… For example, if India and the US have CBDCs, we don’t have to wait for the banks to be open to settle transactions. The central banks on either side need not be open to get the finality of settlement. That massively takes out the settlement risk from cross-border transactions. So, the internationalisation of CBDCs is something I am looking forward to.” Money Control reported Sankar as making the statement today.

India has the highest volumes globally of international remittances – low value payments of under $200, often by migrant workers – reaching $89 billion in 2021, according to the World Bank.

There are several multi-CBDC initiatives aiming to address cross border payment inefficiencies. One of the two most significant in terms of the number of countries involved is the MBridge Project initiated by Thailand, with the central banks of Hong Kong, China and the UAE as participants. In terms of Indian exports, the latter three countries rank number two, three and four (after the United States). On the other hand, India has ongoing border tensions with China.

India’s fifth largest export destination is Singapore, which initiated Project Dunbar, an M-CBDC project that currently includes Australia, Malaysia and South Africa, with the Philippines considering joining.

Wholesale CBDC comes first

Two weeks ago, India’s Business Standard reported that the first phase of India’s digital rupee rollout would initially be used by ‘wholesale businesses’ with all participants identified. Typically a wholesale CBDC means only banks can use the digital currency, but in some countries, experiments expanded to include corporate payments. 

The report suggested that pilots would only progress to a consumer-targeted or retail CBDC after the wholesale trials. At that stage, a decision would be taken on whether to allow any level of anonymity for smaller value payments.

Consistent with this report, earlier this week, we wrote that India’s central bank has started to work with the four state banks and fintechs.

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