Reports that the Reserve Bank of India is encouraging the government to place digital currencies on the BRICS agenda point to a potentially significant shift in how cross-border payments could be conducted among emerging economies. While the move promises efficiency, transparency, and strategic autonomy, it also carries regulatory and geopolitical risks that India must carefully navigate.
What is the RBI’s proposal?
Though not formally announced, media reports suggest that the has written to the Ministry of Finance, urging it to leverage India’s BRICS chairmanship in 2026 to promote cooperation among BRICS countries on the use of Central Bank Digital Currencies (CBDCs) for cross-border payments. The idea is to explore an interoperable payments framework using CBDCs, thereby reducing reliance on dollar-dominated international settlement systems.
If implemented, such a mechanism would cover not only the five founding BRICS members—Brazil, Russia, India, China, and South Africa—but also newer members such as Egypt, Ethiopia, Iran, the United Arab Emirates, and Indonesia, with several other countries seeking to join the grouping.
Understanding central bank digital currencies
CBDCs are digital forms of sovereign currency issued directly by a central bank and recognised as legal tender. In India, the RBI has been piloting the e-rupee on a limited scale. Unlike money held in bank accounts, CBDCs exist as standalone digital value stored in wallets, representing a direct claim on the central bank.
CBDCs differ from payment platforms like the Unified Payments Interface (Unified Payments Interface), which merely facilitate transfers between bank accounts. In a CBDC system, value moves from one digital wallet to another, with transactions recorded on a secure digital ledger.
They also differ fundamentally from private cryptocurrencies such as Bitcoin. While cryptocurrencies are decentralised, largely unregulated, and volatile, CBDCs are centrally issued, regulated, and backed by the monetary authority. One e-rupee, for example, is always equal in value to one physical rupee.
Why CBDCs are seen as useful for cross-border payments
CBDCs offer multiple advantages in international transactions. Their digital and ledger-based nature enables a high degree of transparency and traceability, making it easier to monitor cross-border flows and curb money laundering and illicit finance. Once recorded, transactions cannot be altered, strengthening trust in the system.
Another advantage is programmability. CBDCs can be designed to operate only under predefined conditions—such as for specific categories of goods, within certain locations, or during defined time periods. This opens up possibilities for more efficient and targeted trade settlements.
At a broader strategic level, CBDCs could help India and other BRICS members manage trade with countries such as Iran and Russia, which face restrictions in accessing the dollar-based SWIFT system. While India currently relies on bilateral arrangements using national currencies, these solutions have limited scalability. CBDCs offer a more systematic alternative.
Geopolitical and economic considerations
The proposal has implications beyond payments efficiency. Reducing dependence on the U.S. dollar aligns with the broader BRICS objective of enhancing financial autonomy. However, such moves may invite political and economic pushback. In the past, U.S. President has warned of imposing additional tariffs on countries pursuing alternatives to the dollar.
If CBDC-based BRICS trade is perceived as undermining the dollar’s role, India could face additional trade pressures. Policymakers would need to balance long-term strategic benefits against the risk of short-term economic costs.
Regulatory and operational challenges
Designing a cross-border CBDC framework among multiple countries involves complex legal, regulatory, and technical coordination. Issues related to data sharing, privacy, exchange rates, settlement finality, and dispute resolution would need harmonised standards. As a result, even if political consensus exists, the tangible benefits of such a system may take several years to emerge.
The road ahead
The RBI’s reported initiative signals India’s intent to play a proactive role in shaping the future of global payments, particularly among emerging economies. Whether this idea advances beyond exploratory discussions will depend on BRICS-wide consensus, regulatory preparedness, and India’s assessment of geopolitical risks. CBDCs thus represent both an opportunity and a challenge in India’s evolving economic diplomacy.
What to note for Prelims?
- Definition and key features of Central Bank Digital Currencies (CBDCs).
- Differences between CBDCs, UPI, and private cryptocurrencies.
- Role of BRICS in global economic governance.
- Importance of SWIFT in international payments.
What to note for Mains?
- CBDCs as tools for financial sovereignty and de-dollarisation.
- Benefits and risks of using digital currencies for cross-border payments.
- Geopolitical constraints on alternative payment systems.
- Regulatory coordination challenges among BRICS countries.