RBI proposes plug-and-play system for payments

RBI representatives discussed the potential for improved efficiency in cross-border transactions due to the emergence of fast payment systems and central bank digital currencies (CBDCs). However, he acknowledged that countries might prioritize domestic considerations when designing these systems, which could present challenges to achieving harmonization.

To address this, the RBI suggests creating a plug-and-play system that supports replicability while respecting the sovereignty of individual nations. The proposed framework aims to enable countries to implement cross-border payment solutions that meet their specific needs while ensuring compatibility with other nations' systems. India has already made progress in this area and is planning to further develop this system to support international efforts.

Representatives highlighted the need for interoperability between traditional payment systems and CBDCs. They emphasized that it is important for a country’s existing legacy system to interact not only with another country’s legacy system but also with another’s CBDC.

Despite the potential benefits, they noted that achieving true interoperability could be challenging and may involve trade-offs. While technical issues can be managed through the adoption of common international standards, they indicated that establishing a governance structure for long-term sustainability requires further attention.

Regarding cross-border transactions, they pointed out that while efficiency improvements have been made in wholesale markets, the retail cross-border space still faces issues such as multiple layers, which add to costs and delays in remittances.

G20 initiatives

Efforts to improve cross-border payments have been a recurring focus for the G20 and international standard-setting bodies like the Committee on Payments and Market Infrastructures. Various countries are already pursuing bilateral and multilateral initiatives to enhance these transactions. Since December 2022, when India assumed the G20 Presidency, the country has prioritized digital asset regulation, including efforts led by Prime Minister Narendra Modi to explore CBDCs.

India’s Department of Economic Affairs is also preparing a consultation paper on cryptocurrency legislation, which is expected to be released later in the year.

Acting globally

The RBI’s proposal for a plug-and-play system aligns with global efforts to improve cross-border payments and promote financial inclusion. By emphasizing interoperability and flexibility, the RBI aims to create a framework that can adapt to diverse regulatory environments and technological infrastructures.

This initiative could potentially serve as a model for other countries seeking to balance their domestic needs with the goal of greater global financial integration.