RBI in talks with leading global peers to promote digital rupee payments

“CBDC (central bank digital currency) is going to be the future of money. We are preparing ourselves for that. By the end of this month, we hope to reach about one million users of retail CBDC. That is for domestic payments. But cross-border payments will also become much quicker, more seamless and very cost-effective. That is another area where a lot of attention needs to be given. We are constantly in dialogue with other central banks that have introduced or are introducing CBDCs,” he said in an interview after being honoured as “Governor of the Year” at London’s Central Banking Awards.

Barely months before unveiling the CBDC pilot in both retail and wholesale segments, the central bank allowed rupee settlement for international trade as a step towards internationalisation of the rupee.

Banks from 18 countries have opened rupee vostro accounts since July last year, helping their importers settle payments in the rupee.

“In India, we have no shortage of dollars, but in some other markets, due to a shortage of dollars, they are unable to do imports. So, in a sense, it is a facility we are giving, so countries can continue to import from India and settle in rupees. It also de-risks importers and exporters from both sides, from the volatility of international currencies,” Das said during the interview with Christopher Jeffery, Central Banking’s editor in chief, and Daniel Hinge.

The central bank shared the copy of the interview Monday with the local media. Das responded to a host of queries ranging from RBI’s foreign exchange strategy to India’s inflation dynamics and Indian banking.He shared his thoughts behind the strategy to stack up foreign exchange reserves when the dollar inflows were strong.”In the ‘taper tantrum’ period, suddenly, India had an external sector crisis, and the RBI had to attract foreign inflows by offering some incentives. We did not want to have a repeat of that situation. For that, we needed to build reserves, which must be strong. So, as a conscious policy, when the inflows were good, we started to build our reserves,” said Das, who has been at the helm of the central bank of the world’s fifth largest economy since December 2018.

India’s foreign exchange reserves peaked in September 2021 to about $642 billion, which has provided RBI the elbowroom to intervene in the market when overseas investors started withdrawing dollars from the emerging markets following Russia’s attack on Ukraine last year. RBI’s intervention helped the rupee to be one of the least volatile currencies last year despite intense pressure.

Das, who served more than four decades as an Indian Administrative Service officer prior to his current role, said India can achieve optimum growth if inflation can be reduced to 4% level and there is no immediate need to change the inflation goalpost.

“We recommended that 4% was the desirable target, because our analysis shows 4% is the level at which there will be optimum growth… I feel existing targets are quite robust, they are built over a period of time. And because of the experience of the last two or three years, with many black swan events, one should not in a hurry shift the goalposts,” Das said.

On the banking sector, he said that Indian banks are more agile and alert than ever before in recognising risks and addressing them on time. “We have really strengthened. As a result, the Indian banking sector today is very stable and healthy,” he said, referring to the critical parameters in terms of capital adequacy, liquidity and percentage of stressed assets.

He said that banks now with strong capital buffers are ready to handle severe stress as shown in the stress tests after the failure of banks in the US and Credit Suisse in Europe. Asked about the relationship between the central bank and government, Das spoke about interdependence between the two authorities and the need for a relationship based on a constant dialogue.