When CBDC was introduced in India (Refer: “Article CBDC Will change the World Economic Order” in 2022, we had indicated that the CBDC-W was useful in substituting the SWIFT mechanism and can be extended to Exporters and Importers. We had however held that CBDC-R for retail use may not be that useful since in India we already have the UPI system.
Much before the concept of CBDC emerged, we had commented in our article in 2016 ” Here is how the Currency shortage can Vanish in a jiffy with Digi-Real Currency“. We had also explored in 2022, the impact of Data Protection Bill 2022 on CDC in our article “CBDC or E Rupee and the Data Protection Bill 2022” .
The concepts discussed in these articles remain relevant today and gains further strength not only because DPDPA has been enacted but also because India has now actively begun cooperating with the BRICS countries to introduce a currency exchange mechanism through the CBDCs of each country.
Watch the video from PGurus in this regard.
The video discusses the possible exchange system where settlements between the BRICS Countries may move through a central exchange currency which could be the CBDC-Rupee. In this system any payment to be made between Country A to Country B will first be converted from the importer country to E-Rupee and then E-Rupee to the CBDC of the Exporter country.
The Clearing mechanism can be owned by any one of the participating country or a consortium of countries like the “Board of CBDCs” which can be created to replace SWIFT.
At the same time, a thought arises if CBDC-R may also be made relevant by creating an exchange mechanism within India between the E-Rupee in retail with the UPI system.
Currently in the UPI system, the requests between the payer and the receiver is routed through the NPCI to the respective banks who initiate the bank to bank transfer of money. These transactions directly debit or credit the rupee balances in the account.
In case the customer keeps the funds in E-Rupee form and created a link between his normal account with a Zero Balance, then there can be a E-Rupee Exchange mechanism where by the UPI request can be directly routed to the E-Rupee Clearing house along with the destination Bank identity where the credit can be given either to the E-Rupee account of the receiver or to his regular account.
In such a system all existing Checking accounts would be like “BSPs” or “Banking Service Providers” where digital instructions pass through automatically. Any need to convert the E-Rupee into physical cash can be routed through the regular account where as Bank to Bank transfers can be conducted through E-Rupee exchange system.
We need to explore if such a system may be helpful in reducing Banking costs and reducing the frauds.
Request views of experts on whether this makes sense.
Naavi
