Cross-border payments have always been a challenge. In the digital age, it’s even more difficult to move money around the world quickly and cheaply. However, digital currencies like Bitcoin and Ethereum are beginning to change that. By using blockchain technology, these digital currencies can be sent anywhere in the world in a matter of minutes, and for a fraction of the cost of traditional methods. digital currencies are still in their early stages, but they have the potential to revolutionize cross-border payments. Central banks are even exploring the possibility of issuing their own digital currencies, known as CBDCs. This would allow them to take advantage of the speed and efficiency of digital currencies while still providing the stability and security that comes with government backing.
This piece is posted at NDTV Profit and speaks to the ubiquitous combined subjects of cross-borders payments along with digital currencies. India’s Finance Minister stated that the budget includes funding for a pilot launch of a digital rupee in the 2022-2023 fiscal year. There are numerous studies and various pilots underway across the globe, with mainly retail uses cases, but also an ingrained expectation that CBDCs will eventually help to reduce the cost of cross-border payments, initially in the remittance space but eventually C2B and B2B as well.
‘’Central bank digital currency (CBDC), to be launched this year, could become a tool for reducing time and cost for cross-border transactions, Reserve Bank Deputy Governor T Rabi Sankar said on Wednesday….The RBI has proposed to launch on a pilot basis this year, as announced in the Budget by Finance Minister Nirmala Sitharaman….In the Union Budget for 2022-23, the finance minister had said the RBI would roll out a digital equivalent to the rupee in the current financial year….”We have to understand that internationalisation of CBDC is crucial to addressing the payments issue that bodies like G-20 and Bank for International Settlements (BIS) are dealing with now,” he said at India Ideas Summit.’
We have pointed out a number of use cases for cryptos in the B2B space in recent member research. Momentum has been growing for several years around the potential for cryptos in wholesale uses, and stable coins as well as certain other currencies have been used in liquidity transfers. However, the imaginings around CBDCs as a wholesale currency use is likely more than a few years away. While the cost effectiveness remains the most important dimension of cross-border digital currencies, fraud management remains a major concern as well.
‘There is a lot of scope for improvement in terms of both cost and speed, he noted….CBDC is probably the most efficient answer to this, he said, adding, for example, if India CBDC and the US CBDC systems can talk to each other, we don’t have to wait for settling transactions….”That massively takes out the settlement risk from cross border transaction that reduces time, that reduces cost. So, CBDC internationalisation is something that I’m looking forward to,” he said….Concerning fraud management, Sankar said digital payment needs to be scaled up while preserving system integrity, which essentially means technical stability….’”It just doesn’t mean that the technical failures of transactions have to be minimised, it also means that transactions themselves have to inspire confidence, we cannot have too many instances of frauds,” he added.’
Overview by Steve Murphy, Director, Commercial and Enterprise Payments Advisory Service at Mercator Advisory Group.