Central Bank Deputy Governor T Rabi Sinkar said on Wednesday that the Central Bank Digital Currency (CBDC), which will be launched this year, could become a tool to reduce the time and cost of cross-border transactions.
The Reserve Bank of India has proposed launching it on a trial basis this year, as announced in the budget by Finance Minister Nirmala Sitharaman.
In the Union Budget 2022-23, the Finance Minister said that the Reserve Bank of India will introduce the equivalent of the digital rupee in the current financial year.
“We have to understand that the internationalization of digital central bank currencies is critical to addressing the payments issue that bodies like the G20 and the Bank for International Settlements (BIS) are now dealing with,” he said at the India Ideas Summit.
Noting that India has an excellent, cheap and fast domestic payment system, he said the cost of cross-border payment, however, remains high.
He noted that there was significant scope for improvement in terms of cost and speed.
He said that the CBDC would probably be the most effective answer to that, adding, for example, that if the Indian CBDCs and the US CBDCs could talk to each other, we wouldn’t have to wait for transactions to settle.
“This significantly removes settlement risks from cross-border transactions which reduces time and reduces cost. So, internationalizing digital central bank currencies is something I am looking forward to,” he said.
In terms of fraud management, Sankar said that digital payment needs to scale up while maintaining system integrity, which basically means technical stability.
He added- “Not only does this mean that technical failures of transactions should be reduced, but also that the transactions themselves should inspire trust, and we cannot have too many cases of fraud.”
He noted that “fraud management is an area that we also need to focus on if we are to scale (digital payment)”.
Citing the example of a Unified Payments Interface (UPI) for non-privileged phones, Sankar said the RBI is paying particular attention to the fact that digital payment technology should be universal.
“The third is of course innovation. I talked about it in terms of what the RBI Innovation Center is doing. But this innovative drive is something we want the industry to live up to,” he said.
Regarding data security, he said that the central bank should continue to work on it on an ongoing basis.
“We have to understand (that) there is no moment when we feel safe enough because that is the moment when you become vulnerable,” he added.
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