BRICS Digital Currency Linkage: RBI’s Proposal for CBDC-Based Cross-Border Payments

Context

1. The Reserve Bank of India has reportedly suggested that India use its BRICS chairmanship in 2026 to promote collaboration among BRICS members on using Central Bank Digital Currencies for cross-border payments.
2. The proposal reflects growing interest among emerging economies in reducing transaction costs, improving settlement efficiency, and lowering reliance on the US dollar-dominated global payment architecture.
3. However, differences in regulatory frameworks, cyber security preparedness, and geopolitical sensitivities make the proposal complex and necessitate a cautious, phased approach.

Q1. What is the RBI’s proposal regarding BRICS digital currency linkage, and why has it gained relevance in the current global financial order?

1. The RBI has proposed exploring the use of CBDCs for cross-border payments among BRICS countries.
2. The idea is to create a common or interoperable digital payment framework.
3. It would cover both founding BRICS members and newly inducted countries.
4. The proposal has gained relevance due to rising costs and delays in traditional cross-border payments.
5. Increasing weaponisation of the dollar-based financial system has heightened interest in alternatives.
6. Emerging economies seek greater monetary autonomy and resilience.
7. India sees this as an opportunity to shape new global payment norms.

Q2. What are Central Bank Digital Currencies (CBDCs), and how are they structurally different from UPI and private cryptocurrencies?

1. CBDCs are sovereign digital currencies issued by central banks as legal tender.
2. In India, the e-rupee is a digital form of physical currency.
3. CBDCs transfer value directly between digital wallets, not bank accounts.
4. UPI, in contrast, is only a payment messaging system between bank accounts.
5. CBDCs are centrally regulated and backed by the state.
6. Private cryptocurrencies are decentralised and lack sovereign backing.
7. CBDCs therefore combine digital efficiency with monetary stability.

Q3. How could a BRICS-wide CBDC payment framework improve efficiency in cross-border trade and settlements?

1. CBDCs can significantly reduce transaction costs by removing intermediaries.
2. Settlement times could be reduced from days to near-instant execution.
3. Exchange rate conversions can be streamlined within the payment framework.
4. Small and medium exporters would benefit from faster liquidity cycles.
5. Trade invoicing and settlement could become more predictable.
6. Operational frictions in correspondent banking would decline.
7. Overall trade integration within BRICS would deepen.

Q4. In what ways can CBDC-based cross-border payments strengthen transparency, traceability, and financial regulation?

1. CBDC transactions are recorded on secure digital ledgers.
2. These ledgers create permanent and tamper-proof transaction trails.
3. Regulators can trace funds across borders in real time.
4. Illicit activities like money laundering become easier to detect.
5. Compliance rules can be embedded directly into transactions.
6. Monitoring costs for regulators are reduced.
7. This enhances trust in cross-border financial flows

Q5. Why is reducing dependence on the US dollar a strategic motivation behind BRICS digital currency cooperation?

1. The US dollar dominates global trade and financial settlements.
2. Dollar dependence exposes countries to external monetary tightening.
3. Sanctions and payment restrictions disrupt trade with certain partners.
4. BRICS countries seek greater control over trade settlements.
5. CBDCs offer an alternative to dollar-based systems like SWIFT.
6. Reduced dollar reliance enhances economic sovereignty.
7. It also strengthens South–South financial cooperation.

Q6. What regulatory and technological challenges complicate the implementation of CBDC-based cross-border payments among BRICS nations?

1. BRICS countries have diverse legal and regulatory systems.
2. Harmonising these frameworks is complex and time-consuming.
3. CBDC technologies are at different stages of development.
4. Ensuring interoperability between digital currencies is difficult.
5. Data protection and privacy standards vary across countries.
6. Institutional capacity differs among members.
7. These gaps delay practical implementation.

Q7. What financial stability and cyber security risks could arise from cross-border use of CBDCs?

1. Rapid cross-border flows could increase capital volatility.
2. Weak safeguards may amplify financial contagion risks.
3. Cyber attacks could target interconnected digital payment systems.
4. System-wide failures could have cross-border spillovers.
5. Central banks would need robust risk-management frameworks.
6. Consumer protection mechanisms must be clearly defined.
7. Stability concerns require strong coordination among regulators.

Q8. How might geopolitical reactions, particularly from the United States, affect India’s participation in BRICS CBDC initiatives?

1. The US views efforts to reduce dollar dominance with concern.
2. Past statements have warned of retaliatory trade measures.
3. India already faces high tariff exposure in US markets.
4. Aggressive CBDC cooperation could invite economic pressure.
5. Trade and technology relations may be affected.
6. India must assess costs alongside strategic benefits.
7. Diplomatic signalling becomes crucial.

Q9. What should be India’s calibrated strategy toward BRICS digital currency linkage to balance long-term gains and short-term risks?

1. India should support pilot projects before full-scale adoption.
2. Regulatory harmonisation should precede operational rollout.
3. Cyber security and data sovereignty must be prioritised.
4. Coordination with like-minded partners should be strengthened.
5. Engagement should remain non-confrontational geopolitically.
6. Economic risks must be continuously assessed.
7. A phased approach ensures stability and credibility.

Conclusion

The RBI’s proposal for BRICS digital currency linkage reflects India’s aspiration to modernise cross-border payments, enhance financial sovereignty, and shape emerging global monetary norms. While the long-term strategic benefits are significant, the initiative carries regulatory, technological, and geopolitical risks that demand caution. A gradual, well-coordinated, and diplomatically sensitive approach will allow India to harness the advantages of CBDCs while safeguarding financial stability and external economic relations.