The Reserve Bank of India (RBI), the country’s central bank, has suggested developing a plug-and-play system for cross-border payments to improve interoperability among countries.
With the emergence of fast payment systems across countries and experimentation around central bank digital currencies (CBDC), new possibilities have emerged that could bring greater efficiency to cross-border payments.
At a recent conference, RBI Governor Shaktikanta Das said that maximum efficiency gains in such initiatives would come from ensuring interoperability as a key design element.
However, in the process of attaining harmonization and interoperability among countries, a key challenge could be that countries may prefer to design their own systems according to their domestic considerations. Explaining RBI’s strategy to overcome this obstacle, Das said:
“We can overcome this challenge by developing a plug-and-play system which allows replicability while also maintaining the sovereignty of respective countries.”
India has already made some progress and is looking to develop a plug-and-play system to benefit the community of nations.
Check out Cointelegraph’s guide to find out why central banks want to get into digital currencies.
Improving interoperability between traditional payments and CBDC systems
While the legacy payment systems should be able to connect to each other, and so should the CBDC systems, Das pointed out that one country’s legacy system should also be interoperable with another country’s CBDC.
However, the actual implementation of interoperability is likely to pose challenges and may involve certain trade-offs. For instance, technical barriers can be overcome by using common international technical standards. Das said that the governance structure or management framework for long-term sustainability is an area that would need to be finalized.
Explaining the delays in cross-border transactions, Das said:
“While much efficiency has been achieved in the case of wholesale markets, the retail cross-border space is still fraught with multiple layers that add to the cost and delays in cross-border remittances.”
Aiming for efficiency in cross-border transactions
A recurring agenda of importance across Group of 20 (G20) countries and international standard-setting bodies, such as the Committee on Payments and Market Infrastructures, has been to bring efficiency to cross-border payments. Das said that a lot of initiatives and experimentation in bilateral and multilateral arrangements among various countries are already underway.
India assumed its G20 presidency in December 2022, with digital asset regulation as one of its agendas. India’s Department of Economic Affairs is preparing a key consultation paper on cryptocurrency legislation, which is expected to be in September or October.
