RBI Notifications

CBDC for efficient Cross-Border Payment


From UPSC perspective, the following things are important :

Prelims level: Central Bank Digital Currency (CBDC)

Mains level: CBDC used for foreign payments


Central Idea: RBI Deputy Governor T. Rabi Shankar commented on CBDC platforms and their potential impact on cross-border payments during the G20 TechSprint.

About Central Bank Digital Currency (CBDC)

  • CBDC is a central bank-issued digital currency which is backed by some kind of assets in the form of either gold, currency reserves, bonds and other assets, recognised by the central banks as a monetary asset.
  • The present concept of CBDCs was directly inspired by Bitcoin, but a CBDC is different from virtual currency and cryptocurrency.
  • Cryptocurrencies are not issued by a state and lack the legal tender status declared by the government.

Hurdles in Cross-Border Payments

  • Fragmented and truncated data formats: Lack of standardization in data formats creates inefficiencies in cross-border payments. Fragmented and truncated data formats create additional costs and delays in the processing of transactions.
  • Complex processing of compliance checks: Cross-border payments require compliance with different regulatory frameworks in different jurisdictions. Compliance checks can be complex and time-consuming, causing delays and additional costs.
  • Limited operating hours: Traditional banking systems have limited operating hours, which can cause delays in cross-border payments. International time zone differences also contribute to these challenges.
  • Legacy technology platforms: Traditional banking systems still rely on legacy technology platforms, which can be slow and outdated. This can lead to inefficiencies and delays in cross-border payments.
  • Long transaction chains: Cross-border payments often involve multiple intermediaries, which can lead to long transaction chains. Each intermediary adds additional costs and can increase the time it takes for a transaction to be completed.
  • Funding costs: Cross-border payments require funding in multiple currencies, which can lead to additional costs. Exchange rate fluctuations can also impact the cost of cross-border payments.
  • Weak competition: The lack of competition in the cross-border payments industry can contribute to inefficiencies and high costs. The dominance of a few large players can limit innovation and hinder the development of more efficient solutions.

Potential benefits with CBDC

  • Less intermediaries: CBDC can reduce the need for multiple intermediaries in cross-border payments, leading to a faster and more efficient process.
  • Enhanced efficiency: It can increase the speed and efficiency of cross-border payments by reducing processing times and delays.
  • Enhanced integration: It can enable better integration between different payment systems, reducing fragmentation and increasing interoperability.
  • Enhanced technical compatibility: It can be designed to work with existing payment infrastructure, making it easier to adopt and integrate into the current system.
  • Enhanced safety: It can provide enhanced security measures that can help mitigate the risk of fraud and cyber-attacks in cross-border payments.
  • Mitigation of cross-currency risks: CBDC can help mitigate risks associated with cross-border and cross-currency transactions, such as exchange rate fluctuations, currency conversion fees, and transaction processing delays.

How can this be implemented to practice?


Description Examples
Model 1 Enhancing Compatibility Among Domestic CBDC Systems Many central banks are working to enhance the compatibility of domestic CBDC systems. Common international standards are required, which require regulatory coordination and market practices.
Model 2 Interlinking CBDC Systems CBDC networks are linked up by synchronizing payment actions without the need for a trusted third party or a common platform.
Model 3 Establishing a Single mCBDC System Cross-border payments are processed through a jointly operated “corridor network”.


RBI’s push for CBDC adoption @ G20

  • RBI emphasized the need for increased adoption of CBDCs across countries for them to play a role in the cross-border payments arena.
  • Countries need to decide to create CBDCs and create an infrastructure for various CBDCs to interface for CBDCs to be effective in cross-border payments.
  • RBI suggested India’s model of digitization, where the basic infrastructure was created by the public sector and the fintech/financial/start-up ecosystem was allowed to create innovative solutions, could also be successful with CBDCs globally


  • CBDCs could bring about a significant change in the sphere of cross-border payments, but coordination across countries and between the public and private sectors is essential for that to happen


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