Central Bank Digital Currency (CBDC) platforms could bring about a substantive change in the sphere of cross-border payments, RBI Deputy Governor T. Rabi Shankar observed on May 4, adding that coordination across countries, and between the public and private sectors was, however, essential for that eventuality to take shape.
“Cross-border payments has been at the forefront of initiatives by G-20 and other organisations for the last few years,” Mr. Shankar said speaking at the fourth edition of the G20 TechSprint, a global technology competition to promote innovative solutions aimed at improving cross-border payments, jointly organised by the Reserve Bank of India (RBI) and the Bank for International Settlements’ BIS Innovation Hub (BISIH). “This Hackathon will give it a fillip in taking this initiative forward,” he added.
Under India’s G20 Presidency, the RBI and BIS have invited global innovators to help develop innovative technology solutions for cross-border payments.
“There has to be increased adoption of CBDCs across countries,” Mr. Shankar stressed. “Countries first need to decide to create CBDCs. The next step is to create an infrastructure for various CBDCs to interface. These two things need to happen for CBDCs to play the role one expects them to play in the cross border payments arena,” he added.
He said India’s model of digitisation had largely been one where the basic infrastructure had been created by the public sector on which the creativity of the fintech/financial/start-up ecosystem had been allowed to play and create its innovations.
“This has really stood us in good stead. We have not only managed to create solutions that would have been unimaginable 5 years back but we have also been able to manage the scaling up of those digital innovations to a population scale,” he said.
“This model would also prove to be a successful model with CBDCs globally,” he added.
Mr. Shankar said solutions must be explored to curb illicit global finance, especially in the context of the use of private virtual currencies for money laundering. “The number that came out last year was $23.8 billion and other illicit purposes (roughly about $20 billion). I understand that these are at the lower end of the range of estimates,” he said.
He said in this context CBDC was a far superior fiat alternative for maintenance of global financial integrity. He also said that it would be in the interest of the international currency system to have a little more diversified liquid currencies which could actually have the additional benefit of de-risking the global financial systems.
The competition is open to developers from around the world for submitting applications from May 4 to June 4 and the TechSprint will conclude around August/ September 2023.
The 2023 TechSprint will focus on three problem statements on cross-border payments formulated by RBI and the BISIH. The detailed problem statements are available at https://techsprint.rbi.org.in/.
“Payments should be able to flow seamlessly across borders and between payment systems to promote competition while preserving financial integrity,” the RBI said in a statement.
When payments across borders become efficient, economic linkages, economic cooperation and economic activities across borders become easier, effective and efficient, it noted.
“Leveraging on the important work of the G20 cross-border payments programme, the TechSprint aims to showcase how technology solutions can address illicit financing risks, provide settlement solutions in other currencies and achieve interoperability in multilateral Central Bank Digital Currency (CBDC) platforms,” the RBI added.
Shortlisted teams will be invited to develop their solutions over a six-week period and each team will be eligible for a stipend of ₹8 lakh. The shortlisted teams will have an opportunity to showcase their as-developed solutions and to receive feedback from national authorities and invited experts.
An independent panel of experts will select the most promising solution to each problem statement from the shortlisted solutions, to be announced at a final event in August/ September 2023.
The winners for each problem statement will receive an award of ₹40 lakh (about $50,000)..
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