Reserve Bank Governor Shaktikanta Das has said that the Central Bank Digital Currency (CBDC), which is being promoted by the central bank, can play an important role in cross-border payments without much difficulty.
The Reserve Bank, he said, has undertaken pilot projects with regard to promotion of the CBDC and the results have been “excellent”. The CBDC as a pilot was introduced in the wholesale and retail segments and will now be extended to overnight money markets.
“The learning has been excellent and more than what it was one year ago. We are even more convinced that CBDC can prove to be the most effective and efficient mode for cross-border payments in particular, other than of course domestic transactions. And this is not something which is very difficult,” he said at an interaction at IMF Governor Talks at Marrakesh, Morocco early this month.
He emphasised that while paper currency will continue, the CBDC is going to be the future currency of the world.
“CBDC is going to be the future currency of the world and it is necessary that every central bank, every country works on CBDC,” he said.
He further said the world is moving towards technology, and CBDCs have a major role, because they can really facilitate efficient, cost-effective and faster payments across jurisdictions for cross border payments for cross border transactions.
On India’s foreign exchange reserves, the governor said it was a conscious decision to build up the reserves as a buffer and insurance against spillover risks.
“We have to be self-dependent. We have to have our strong reserves. So with that objective, we have been building up very strong reserves and in fact, that has given great confidence to the market, that whatever be the challenge, India will be able to meet its external sector obligations,” he said.
Das said the reserves did help India during the Ukraine war when the US dollar suddenly became very strong and all the emerging market currencies depreciated.
The Indian currency did not depreciate as much because the market had confidence that the Reserve Bank of India would be able to meet its obligations.
The governor further said he would not hesitate to say that the RBI does intervene in the market but “our intervention is both ways”.
Das said sometimes the RBI buys dollars and sometimes it sells dollars as it depends on which way the market is moving.
But RBI’s objective is not to fix the rupee to have a particular level as the central bank does not have any particular level (exchange rate) of Indian rupee for the Indian rupee in its mind against the dollar.
Das also stressed the importance of coordination between the fiscal and monetary authorities.
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