Context:
The Reserve Bank of India (RBI) is reportedly urging India to promote Central Bank Digital Currencies (CBDCs) for cross-border payments among BRICS nations, potentially reducing dependence on the U.S. dollar and SWIFT system.
Key Highlights:
- Strategic Push at BRICS
- Proposal linked to India’s 2026 BRICS Chairmanship.
- Envisions payment system covering:
- Original BRICS (Brazil, Russia, India, China, South Africa)
- New members: Egypt, Ethiopia, Iran, UAE, Indonesia.
- CBDC Features
- Digital legal tender issued by central bank (e.g., India’s e-rupee).
- Operates on blockchain-based distributed ledger.
- Provides:
- Transparency
- Traceability
- Programmability
- Strategic Rationale
- Alternative to SWIFT-based payment network.
- Useful for countries facing financial sanctions.
- Potential reduction in illicit financial flows.
- Challenges
- Legal and regulatory harmonization across jurisdictions.
- Possible geopolitical resistance, especially from the United States.
Relevant Prelims Points:
- CBDC:
- Liability of the central bank.
- Distinct from cryptocurrencies (e.g., Bitcoin).
- SWIFT:
- Society for Worldwide Interbank Financial Telecommunication.
- Blockchain:
- Distributed, immutable ledger.
- India launched e₹ (Digital Rupee) pilot in 2022.
Relevant Mains Points:
- International Relations:
- Move toward de-dollarization.
- Financial multipolarity within BRICS.
- Strategic autonomy in payments.
- Economic Governance:
- Reduced transaction costs.
- Faster settlement mechanisms.
- Enhanced compliance and AML tracking.
- Geopolitical Risks:
- Potential sanctions.
- Financial fragmentation of global system.
- Digital Economy Transition:
- Aligns with India’s Digital Public Infrastructure (DPI) model.
Way Forward:
- Gradual pilot-based cross-border CBDC corridors.
- Regulatory harmonization within BRICS.
- Safeguards against cyber risks.
- Maintain balanced diplomacy to avoid economic retaliation.
UPSC Relevance:
GS Paper 2 – International Relations
GS Paper 3 – Economy (Digital Currency, Financial Systems)
Prelims Focus: CBDC, SWIFT, Blockchain