CBDCs can make payments across borders efficient: Das

Subject: Economy

Section: Monetary Policy

In News: RBI Governor highlights the benefits to cross border payments from adoption of the Central Bank Digital Currencies (CBDCs).

Key Points:

RBI Governor said that the adoption of Central Bank Digital Currency (CBDC), or digital currency, can help in making cross border payments more efficient.
The key challenges to existing cross-border payments continued to be high cost, low speed, limited access and insufficient transparency.
And adoption of the Central Bank Digital Currencies (CBDCs) can make cross-border payments efficient.
Faster, cheaper, more transparent, and more inclusive cross-border payment services would deliver widespread benefits to people and economies worldwide. It would also support economic growth, international trade and financial inclusion.
Instant settlement feature, I believe, CBDCs can play an important role in making cross-border payments cheaper, faster and more secure.
They can help in reducing illicit finance risk; forex and technology solutions for currency settlement; and technology solutions for multilateral cross-border CBDC platforms.
India is one of the few countries which have launched CBDC pilots in both wholesale and retail segments
Way ahead:
- Developing solutions and technologies for multilateral cross-border CBDC platforms which could contribute to interoperability across multi-CBDC platforms or domestic payment systems;
- Reduce operational cost; and increase efficiency, while ensuring consistency in standards across multiple jurisdictions

What is CBDC?

The term central bank digital currency (CBDC) refers to the virtual form of a fiat currency.
A CBDC is an electronic record or digital token of a country’s official currency.
As such, it is issued and regulated by the nation’s monetary authority or central bank. As such, they are backed by the full faith and credit of the issuing government.
CBDCs can simplify the implementation of monetary and fiscal policy and promote financial inclusion in an economy by bringing the unbanked into the financial system.
Because they are a centralized form of currency, they may erode the privacy of citizens.
Although they aren’t formally being used, many countries are exploring the introduction and use of CBDCs in their economy.