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RBI Advocates for CBDC-based Global Financial System

Jul 12, 2023

RBI Deputy Governor Calls for CBDC Revolution to Safeguard Policy Sovereignty

Reserve Bank of India (RBI) Deputy Governor T Rabi Sankar expressed India's concerns about stablecoins, emphasising their potential threat to policy sovereignty. In a speech at a banking event, Sankar called for a global financial system based on central bank digital currencies (CBDCs) issued by each country for settling global payments. He highlighted the importance of CBDCs in maintaining financial stability and independence, stating, "We should ideally aim for a global financial system which rests on central bank digital currencies (CBDCs) issued by each country to settle global payments, and not rely on stablecoins."


Sankar criticised banks for charging high margins on cross-border remittances, deeming the practice unjustifiable. He cited a World Bank study that revealed banks charge 6 percent for small value remittances through corresponding banks, which he deemed excessively high. This has led to calls for reducing remittance expenses and exploring alternatives such as cryptocurrencies.


While acknowledging the emergence of stablecoins linked to foreign currencies, Sankar stressed that most countries do not embrace private cryptocurrencies like Bitcoin. He questioned the desirability of stablecoins linked to foreign currencies being used in India, highlighting the risks associated with dollarisation and the threat they pose to policy sovereignty. Sankar cautioned, "If we want to maintain our capital account regulations, if we want to maintain our monetary policy independence, we have to be very careful about allowing these sort of instruments."


Sankar reiterated the potential of CBDCs as the preferred solution, advocating for a system where each country introduces its own CBDC and establishes a global platform for CBDCs to facilitate trade settlements. He also emphasised the need for a shift in the banking system's outlook on charging high margins for global remittances, calling for a change in narrative as technology evolves.

The RBI Deputy Governor's remarks reflect the RBI's concerns about stablecoins and the importance of CBDCs in maintaining financial stability, policy sovereignty, and reducing costs in cross-border transactions. The RBI is actively exploring the potential of CBDCs to shape the future of India's financial system.


In a separate address, Sankar shared the RBI's aspirations for its CBDC pilots. With 13 banks and approximately 300,000 merchants participating, Sankar expressed hope that daily CBDC transactions would reach one million by the end of 2023. He emphasised the importance of gathering insights from a substantial transaction volume to understand and study patterns.


Sankar revealed that the RBI is considering ensuring interoperability between the CBDC and the Unified Payments Interface (UPI), a popular platform facilitating nearly 300 million transactions per day. This move aims to enhance the acceptance of the CBDC among the general public. Sankar anticipated that a system allowing immediate settlement for merchants with a CBDC account, as well as a QR code option for those without a CBDC account, would be in place by the end of July.


Highlighting the advantages of CBDCs, Sankar echoed the vision of promoting cross-border transactions through CBDCs. He emphasised that this would be the biggest advantage of CBDCs, as the existing correspondent banking system adds inefficiencies and high costs to cross-border payments. Sankar called for the development of CBDCs in each country, emphasising the importance of frameworks and global standards to enable seamless interaction between digital currencies. This approach would pave the way for cheap and instantaneous cross-border transactions.


With 130 countries worldwide working towards launching CBDCs, Sankar highlighted the global momentum in this area. He mentioned that 32 countries are in the development phase, 46 are conducting research, 21 are carrying out CBDC pilots, and 11 have already officially launched CBDCs.


During the gathering, State Bank of India Chairman Dinesh Kumar Khara emphasised the need for user experience from rural areas, as the current CBDC pilots lack representation from these regions. RBI officials reiterated that a digital rupee would not earn interest, and there was discussion about the possibility of a decline in the usage of physical currency notes as the acceptance of CBDCs expands across the ecosystem.


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