Global: India Proposes Cross-Border CBDC Interoperability with Plug-and-Play System

The Reserve Bank of India (RBI) is exploring the development of a plug-and-play system to enhance the efficiency and interoperability of cross-border payments, particularly in the context of central bank digital currencies (CBDCs). RBI Governor Shaktikanta Das emphasized the importance of this approach during a recent conference, highlighting its potential to streamline international transactions and integrate emerging CBDC systems.

With the growing adoption of fast payment systems and the ongoing experimentation with CBDCs across various countries, there is a significant opportunity to improve cross-border payment processes. Governor Das pointed out that achieving maximum efficiency from these innovations requires interoperability to be a foundational design element.

However, one of the primary challenges in creating such a harmonized system lies in the diverse domestic considerations of individual countries. Many nations may prefer to design payment systems tailored to their specific needs, which could hinder global interoperability efforts. Addressing this issue, Governor Das proposed the development of a plug-and-play system that would allow for easy replication across different countries while respecting their sovereignty.

India has already made strides toward realizing this vision and is actively working on developing a system that could benefit the global community by facilitating smoother cross-border payments.

Improving Interoperability Between Traditional Payments and CBDCs

Governor Das also underscored the importance of ensuring that not only do traditional payment systems connect with each other, but they also need to be interoperable with CBDC systems. For instance, the legacy payment infrastructure of one country should be able to interact seamlessly with another country’s CBDC.

Despite the potential benefits, implementing such interoperability is likely to be challenging and may require certain trade-offs. Technical barriers can be addressed by adopting common international technical standards, but the long-term sustainability of these systems will depend on establishing a robust governance structure and management framework.

Reflecting on the current state of cross-border payments, Governor Das noted that while wholesale markets have seen significant efficiency improvements, retail cross-border transactions still face numerous hurdles. These include multiple layers in the process, which contribute to higher costs and delays in remittances.

Aiming for Efficiency in Cross-Border Transactions

Improving cross-border payment efficiency has been a recurring agenda for the Group of 20 (G20) countries and international standard-setting bodies, such as the Committee on Payments and Market Infrastructures. Governor Das mentioned that various bilateral and multilateral initiatives and experiments are already underway to address these issues.

As part of its G20 presidency, which began in December 2022, India has placed digital asset regulation at the forefront of its agenda. The country’s Department of Economic Affairs is preparing a consultation paper on cryptocurrency legislation, expected to be released in September or October.

India’s efforts in developing a plug-and-play system for cross-border payments signal a proactive approach to shaping the future of global financial transactions, with a focus on both efficiency and interoperability.