Reserve Bank of India Expands Cross-Border Payments Platform

The Reserve Bank of India (RBI) is making significant strides in its effort to modernize cross-border payments by expanding its instant settlement platform. The initiative aims to increase efficiency and reduce costs for international trade, with plans to integrate new trading partners in Asia and the Middle East, including the United Arab Emirates (UAE).

According to a report from Bloomberg, India already has settlement agreements with neighboring countries like Sri Lanka, Bhutan, and Nepal. These partnerships enable faster, more secure cross-border payments and are part of India’s broader strategy to strengthen regional financial ties.

The Role of CBDCs in Cross-Border Payments

A key aspect of India’s cross-border payment upgrade is its growing reliance on central bank digital currencies (CBDCs). The RBI is currently testing a bank-to-bank settlement solution using its digital rupee, which is not yet available for direct consumer use.

Although the retail rollout of the CBDC has not been scheduled, the RBI has hinted at the possibility of expanding access to the general public in the future. This move would bring India’s CBDC in line with similar initiatives from other major economies, especially within the BRICS alliance, which includes China and Russia — two other nations pushing aggressively for sovereign digital currencies.

As of now, India’s CBDC efforts are focused on enabling instant settlements for international trade, with the potential to streamline cross-border payments and reduce reliance on third-party financial intermediaries.

India’s Progress in CBDC Development

India’s exploration of a digital rupee began in 2020, and by 2022, the RBI had launched a series of pilot programs to test its feasibility. The initiative has since grown significantly.

In February 2024, RBI Governor Shaktikanta Das announced that the bank was working on offline CBDC functionality, which would allow the digital rupee to be used in rural areas with limited internet connectivity. This approach aims to ensure financial inclusion for communities without reliable online access, a critical challenge in India’s vast rural regions.

As of August 2024, India had already amassed approximately 5 million users for its digital rupee pilot. Speaking at the Global Conference on Digital Public Infrastructure and Emerging Technologies, Governor Das emphasized that India was in no rush to standardize its pilot into a full-scale CBDC rollout. Instead, the RBI aims to refine its approach and develop a “plug-and-play” system that will make the digital rupee interoperable with other payment networks.

This interoperability initiative is seen as a key driver of cross-border payment efficiency. The plug-and-play model would allow India’s payment systems to work seamlessly with other sovereign CBDCs, enabling faster and more affordable international transactions.

The Global CBDC Race

India’s push for a robust cross-border payment system comes amid a larger global shift toward CBDC development. According to the Atlantic Council, over 134 countries are actively exploring or piloting central bank digital currencies. This includes every G20 country, many of which are looking for ways to streamline cross-border payments and reduce reliance on legacy financial systems.

As part of the BRICS coalition, India is closely aligned with other major players in the CBDC race, notably China and Russia, which are also developing their own national digital currencies. The goal for many of these nations is to reduce dependence on the U.S. dollar for cross-border trade, thereby increasing financial sovereignty.

Privacy and Human Rights Concerns

While many countries view CBDCs as tools for financial efficiency, critics warn of the potential dangers posed by centralized control of digital ledgers. Privacy advocates, human rights activists, and civil liberties groups have raised concerns that CBDCs could be used by governments to monitor and restrict financial transactions.

These groups argue that, unlike cash, CBDCs leave a permanent transaction trail, which could be exploited by authoritarian governments to limit financial freedoms or target dissenters. Privacy activists are pushing for strong data privacy safeguards and calling for greater transparency in CBDC design.

What’s Next for the RBI’s Payment Platform?

The Reserve Bank of India remains committed to enhancing its cross-border payments infrastructure. With the potential inclusion of the UAE as a trading partner, India could further position itself as a leader in regional payments modernization. By leveraging CBDCs for settlements, India could reduce reliance on traditional correspondent banking systems, cutting down on fees and speeding up transactions.

The integration of interoperable CBDCs across multiple jurisdictions could set a precedent for how countries handle cross-border payments in the future. With initiatives like offline CBDC functionality and partnerships with countries like Sri Lanka, Bhutan, Nepal, and UAE, India is laying the groundwork for a more inclusive, efficient, and tech-driven financial ecosystem.