​Building bridges, Pg6

Key Highlights:

• The RBI is reportedly encouraging BRICS nations to link their digital currencies with India's Central Bank Digital Currency (CBDC).
• The proposal to connect CBDCs of BRICS countries may be on the agenda for the 2026 BRICS summit in India.
• RBI has been historically conservative about private cryptocurrencies, advocating for a ban, while being progressive about CBDCs.
• Cross-border payments using CBDCs could ease payments to countries like Russia and Iran due to SWIFT limitations.

Detailed Insights:

• RBI's stance recognizes the risks of cryptocurrencies as investment assets but acknowledges the advantages of blockchain for payments infrastructure.
• CBDCs have a sovereign guarantee and are non-interest-bearing, making them safe and less attractive for speculative returns.
• India's existing UPI infrastructure poses a significant challenge for the domestic adoption of CBDCs.
• Cross-border payments are often used for illicit financial flows, and blockchains can enhance transparency by providing immutable transaction records.
• A BRICS agreement on payment infrastructure could mandate linking payments to national identity numbers or tax departments.
• Moving away from the dollar for international payments may provoke retaliatory measures from the United States.

Key Concepts Involved:

• CBDC (Central Bank Digital Currency): A digital form of a country's fiat currency, issued and regulated by the central bank.
• Blockchain: A decentralized, distributed, and immutable ledger technology used to record transactions across many computers.
• UPI (Unified Payments Interface): An instant real-time payment system developed by National Payments Corporation of India (NPCI).
• SWIFT: A global messaging network used by financial institutions to securely transmit information and instructions.