Reserve Bank of India Explores Cross-Border Payments with Digital Rupee

The Reserve Bank of India (RBI) is actively exploring the potential of its digital currency, the digital rupee, for cross-border transactions. The RBI is in discussions with central banks from approximately 18 nations, according to a recent report by the Economic Times.

RBI Governor, Shaktikanta Das, has emphasized the importance of foreign trade infrastructure for the digital rupee, with an expected domestic user base of 1 million by early July. Das highlighted the potential for cross-border transactions to become faster, more streamlined, and cost-effective with the digital rupee:

“That is another area where a lot of attention needs to be given. We are constantly in dialogue with other central banks that have introduced or are introducing CBDCs.”

Since July 2022, banks from 18 countries have set up rupee vostro accounts, indicating a growing international interest in the digital rupee. Speaking about nations that often face a shortage of USD, Das explained that India is ready to offer its digital rupee for importing Indian goods:

“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.”

The RBI is also motivated to promote the digital rupee for foreign trade transactions to conserve the country’s USD reserves. Das referred to a past external sector crisis in India during the “taper tantrum” period when the RBI had to bring in foreign inflows, and the RBI wishes to avoid a recurrence of such a situation.

The RBI initiated two pilot projects: the wholesale digital rupee in November 2022 and a retail digital rupee in February 2023, reaching up to 50,000 users and 5,000 merchants, The Economic Times reported.