India explores cross-border CBDC interoperability with plug-and-play

The Reserve Bank of India (RBI) is considering the development of a plug-and-play system to enhance cross-border payment efficiency and interoperability among countries’ central bank digital currencies (CBDCs).

RBI Governor Shaktikanta Das recently advocated for this system, emphasizing the importance of interoperability as a key design element in improving global payment systems.

Das highlighted that the rise of fast payment systems and ongoing CBDC experiments present new opportunities for increasing the efficiency of cross-border payments.

One of the main challenges in achieving interoperability is that countries may prefer to design their payment systems to suit domestic needs, potentially hindering harmonization.

To address this, Das proposed a plug-and-play system that allows countries to maintain sovereignty while ensuring that their systems can easily integrate with others.

India has already made strides in this direction and is actively pursuing the development of a plug-and-play system that could benefit the global community.

The RBI envisions that both legacy payment systems and CBDC systems should be interoperable, and ideally, a legacy system in one country should be able to connect with another country’s CBDC.

Implementing such interoperability, however, is expected to pose significant challenges, including technical barriers and the need for a common international technical standard.

Das pointed out that while technical issues can be addressed, establishing a governance structure or management framework for the long-term sustainability of these systems will be crucial.

"We can overcome this challenge by developing a plug-and-play system which allows replicability while also maintaining the sovereignty of respective countries.” - RBI Governor Shaktikanta.

He also noted that despite improvements in wholesale cross-border markets, the retail cross-border payment space remains burdened by multiple layers that increase costs and delay transactions.

Improving cross-border payment efficiency is a recurring agenda item for international bodies like the G20 and the Committee on Payments and Market Infrastructures.

Das mentioned that various initiatives and experiments in bi-lateral and multi-lateral arrangements among countries are already in progress, aimed at enhancing cross-border payment systems.

India, which assumed the G20 Presidency in December 2022, has placed digital asset regulation on its agenda, with the Department of Economic Affairs preparing a key consultation paper on cryptocurrency legislation expected later this year.

The proposed plug-and-play system could play a significant role in shaping the future of global cross-border payments, potentially setting a new standard for interoperability and efficiency in the CBDC space.