India's central bank proposes 'plug-and-play' CBDC framework for cross-border transactions

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The Reserve Bank of India (RBI) has proposed developing a plug-and-play system for cross-border payments to enhance interoperability between countries.

RBI Governor Shaktikanta Das highlighted the potential for greater efficiency in cross-border transactions with the emergence of fast payment systems and central bank digital currencies (CBDCs). However, he noted that countries may prefer to design systems based on domestic considerations, posing a challenge to harmonization efforts.

“We [can] overcome this challenge by developing a plug-and-play system which allows replicability while also maintaining the sovereignty of respective countries,” Das said at a recent conference.

The RBI aims to create a flexible framework that enables countries to implement cross-border payment solutions tailored to their needs while ensuring compatibility with other nations’ systems. India has already made progress in this area and plans to develop a plug-and-play system to benefit the international community.

Das emphasized the importance of interoperability between traditional payment systems and CBDCs. He noted that one country’s legacy system should be able to interact with another country’s CBDC, in addition to connections between legacy systems and between CBDC systems.

However, the RBI governor acknowledged that implementing true interoperability may face challenges and require trade-offs. While technical barriers can be addressed through common international standards, Das pointed out that establishing a governance structure for long-term sustainability remains an area requiring further work.

Addressing delays in cross-border transactions, Das explained that while efficiency gains have been achieved across its wholesale markets, “the retail cross-border space is still fraught with multiple layers that add to the cost and delays in cross-border remittances.”

The push for more efficient cross-border payments has been a recurring agenda item for the G20 and international standard-setting bodies like the Committee on Payments and Market Infrastructures. Das notes, however, that various countries are also already undertaking initiatives and experiments in bilateral and multilateral arrangements to improve cross-border transactions. For context, India’s Prime Minister Narendra Modi has been leading initiatives through the country’s G20 appointment to explore CBDCs since at least Q3 2023.

India assumed the G20 Presidency in December 2022, with digital asset regulation as one of its key focus areas. The country’s Department of Economic Affairs is preparing a consultation paper on cryptocurrency legislation, expected to be released in September or October.

The RBI’s proposal for a plug-and-play system aligns with global efforts to streamline cross-border payments and increase financial inclusion. By prioritizing interoperability and flexibility, the central bank aims to create a framework that can adapt to diverse regulatory environments and technological infrastructures across different countries.

The RBI’s initiative could serve as a model for other countries seeking to balance domestic considerations with the need for global financial integration.

WazirX, the country’s top crypto exchange, was recently hit with a $230 million hack. Meanwhile, Binance, the world’s largest crypto exchange, appears to have resumed operations in the country, although it had to proceed with a $2.2 million settlement.

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