RBI Pushes for BRICS Digital Currency Linkage to Reshape Cross-Border Payments

Why in News ?

The Reserve Bank of India (RBI) has advised the Indian government to encourage BRICS countries to collaborate on using digital currencies for cross-border payments. Such a move could reduce transaction costs, speed up settlements, and lower dependence on the US dollar.

However, in the near term, it also poses risks related to financial stability, regulatory coordination, cyber security, and differences in digital infrastructure among BRICS members, which would require careful management.

Background: Understanding CBDCs and Global Payment Systems

Global cross-border payments are currently dominated by:

• The US dollar,
• The SWIFT messaging system,
• Correspondent banking networks.

These systems are often:

• Costly,
• Slow,
• Opaque,
• Vulnerable to geopolitical sanctions and financial exclusion.

In response, many countries are exploring Central Bank Digital Currencies (CBDCs) as a sovereign, digital alternative to cash and traditional banking instruments, with the potential to modernise both domestic and international payments.

RBI’s Push for BRICS CBDC-Based Cross-Border Payments

The RBI has reportedly proposed that India use its BRICS chairmanship in 2026 to encourage member countries to adopt their CBDCs for cross-border payments.

Key elements of the proposal include:

• Creation of a common payments framework using CBDCs.
• Coverage not only of the five founding BRICS members—Brazil, Russia, India, China, and South Africa—but also newer members such as Egypt, Ethiopia, Iran, the UAE, and Indonesia, with more countries likely to join.
• Integration of national CBDC systems into a shared settlement architecture to enable:
  • Faster settlements,
  • Lower transaction costs,
  • Reduced dependence on intermediary currencies like the US dollar.

Although not formally announced, the RBI is reported to have conveyed this idea to the Ministry of Finance, signalling a strategic push to reshape cross-border payment infrastructure.

About Central Bank Digital Currencies (CBDCs)

CBDCs are legal tender issued by a central bank in fully digital form.

Key features:

• In India, the e-rupee is the CBDC, functioning like physical currency but existing only digitally.
• Stored in digital wallets, not bank accounts.
• Transactions occur directly between wallets, with records maintained on a blockchain-based or distributed digital ledger.
• Unlike payment systems such as UPI, which transfer money between bank accounts, CBDCs transfer value itself.
• Unlike private cryptocurrencies (e.g., Bitcoin), CBDCs are:
  • Centrally issued,
  • Regulated,
  • Backed by the central bank,
  • Have a fixed value (1 e-rupee = 1 rupee).

Benefits of Using CBDCs for Cross-Border Payments

1. Greater Transparency and Traceability

• CBDCs operate on immutable digital ledgers.
• Once recorded, transactions cannot be altered or deleted.
• Enhances detection of money laundering, terror financing, and black-money flows, especially across borders.

2. Programmable Money with Policy Use-Cases

• CBDCs can be programmed with conditions such as:
  • Time limits (expiry dates),
  • Geographic restrictions,
  • Merchant category controls,
  • Purpose-specific usage.
• Additional metadata (payer–payee identity, transaction purpose) can be embedded, improving accountability and policy targeting.

3. Curbing Illicit Cross-Border Financial Flows

• Cross-border payments are a major channel for illegal money movement.
• CBDC-based systems provide authorities with stronger monitoring and enforcement tools than traditional correspondent banking.

4. Geopolitical and Strategic Advantages

• CBDCs can help India manage international payment challenges arising from sanctions and exclusion from dollar-dominated systems, as seen in trade with Iran and Russia.
• A CBDC-based framework offers a more sustainable alternative to settling trade purely in national currencies.
• Strengthens cooperation and financial autonomy within groupings such as BRICS.

Risks and Challenges of Using CBDCs for Cross-Border Payments

1. Regulatory and Technical Harmonisation

• Aligning legal, regulatory, and technical frameworks across multiple countries is complex and time-consuming.
• Differences in:
  • Financial laws,
  • Data protection regimes,
  • Cybersecurity standards,
  • Digital infrastructure,

may delay tangible benefits.

2. Financial Stability Risks

• Large-scale CBDC adoption could alter:
  • Capital flows,
  • Bank deposit structures,
  • Cross-border liquidity patterns, posing risks to financial stability if not carefully managed.

3. Cybersecurity and Operational Risks

• CBDC systems are high-value digital infrastructure and therefore attractive targets for cyberattacks.
• Ensuring resilience, redundancy, and system integrity across jurisdictions is a major challenge.

4. Geopolitical and Trade Risks

• Past statements by U.S. leadership suggest that efforts by BRICS to reduce reliance on the dollar could invite retaliatory measures, including higher tariffs.
• A shift toward CBDC-based payments could therefore expose India to:
  • Additional trade penalties,
  • Strategic pushback,
  • Compounded tariff pressures.

India will need to balance these near-term risks against the long-term gains in monetary sovereignty, financial efficiency, and strategic autonomy.