Reserve Bank of India (RBI) Deputy Governor T Rabi Sankar said on Thursday that it would be in the interest of the international monetary system to have some more diversified liquid currencies as it can de-risk the global financial system.
“We have a global financial system that is dominated, in terms of transactions, in terms of billing, in terms of its use for hedging and other purposes, by a handful of reserve currencies.
“It would probably be in the interest of the international monetary system to have slightly more diversified liquid currencies, which could actually have the added benefit of de-risking global financial systems,” Sankar said at the launch of the fourth edition of the report. annual techsprint: G20 TechSprint 2023, organized by RBI and BIS Innovation Hub.
The Lieutenant Governor opined that with the right infrastructure, liquidity is eminently feasible, regardless of the currency involved, and FX pricing can actually be much more efficient than exists today.
“I’m referring to the currency bid-ask spread, as it affects the size of retail transactions,” he said.
This observation comes even as RBI has taken the first steps towards the internationalization of the rupee, including enabling external trade loans in rupees (especially Masala Bonds) and settling foreign trade in rupees.
cross border payments
Sankar noted that the substantive change that CBDCs (central bank digital currencies) can bring is in the realm of cross-border payments.
“But for that eventuality to take shape, what is needed, more than technology, more than product design, is coordination, between countries and between the public and private sectors,” he said.
A CBDC is the legal tender issued by a central bank in digital format. It is the same as a fiat currency and can be exchanged one for one with fiat currency. Only its shape is different.
“So what is required is for there to be more adoption of CBDC in all countries. So countries must first decide to create CBDCs. The debate has to proceed in such a way as to make a case for its existence.
“The next step is to create an infrastructure for various CBDCs to interact. These two things need to happen for CBDCs to play the role they are expected to play in the arena of cross-border payments,” the lieutenant governor said.
exploring solutions
Sankar noted that it is also timely to explore solutions for illicit global finance, especially in the context of the use of private virtual currencies for money laundering.
“The (global illicit funding) figure that came out last year was $23.8 billion and other illicit purposes (approximately $20 billion). I understand that these are at the lower end of the range of estimates.
“Now here again, CBDC stands out as a superior fiat alternative for the maintenance of global financial integrity. It would not be a case that financial integrity in terms of AML-CFT (anti-money laundering – combating the financing of terrorism) and various other initiatives that have been taken in the last two decades are not lost simply because payments are shifted towards digital. currencies,” he said.
The Lieutenant Governor stressed that it would be in the interest of the global financial system to maintain the gains it has made over the past two decades by making every effort to ensure that most digital currency use is confined to fiat currencies.