How Digital Rupee will revolutionise cross-border payments and remittances

International payments have endured inefficiencies, leading to slower, less transparent, and costlier transactions, compared to domestic payments. With the emergence of the Digital Rupee, more people can reap benefits like instant fund transfers, increased security, and lower currency volatility.

Over the past few years, advancements and developments in digital technology have brought about significant changes across all sectors of the economy. In tandem with the accelerated trend towards digitisation, breakthroughs in consumer payments have changed the course of money and payment systems.

An outcome of this digital economy is the prodigious central bank digital currency (CBDC) pilot programme, described as the future of currency by the Reserve Bank of India (RBI).

Also commonly called the “digital rupee” or “e₹”, it will be interchangeable at par with existing currencies, accepted as a medium of payment, and serve as a safe store of value. In addition to providing a strong impetus to cross-border transactions, the digital rupee is intended to facilitate swift payment processing, provide greater transparency, reduce settlement time to a few seconds, and create a more efficient currency management system.

It would not only eliminate intermediaries but also curtail the transaction fees attached to cross-border payments and defeat the potential of fraudulent activities.

A new chapter in the digital payments landscape 

Let’s look at the benefits associated with the adoption of digital rupee and how it will help cross-border payments.

Speedier fund transfers: Generally, international wire transfers take 4-5 working days to reflect in the recipient’s bank account. Digital rupee will significantly reduce this timeframe and speed up transfers, irrespective of the destination country, currency conversions, or other system complications.

Low transaction costs: International transaction fees, ranging from 1 to 3 percent and averaging around 3 percent of each transaction, can make purchases and fund transfers more expensive. Digital rupee can potentially streamline this by reducing transaction costs. It could also eliminate intermediaries like banks and payment processors, leading to better efficiency and lower transaction costs for both customers and businesses.

Also read | How to use digital Rupee to make UPI payments 

Instant settlement: Given that digital rupee will be backed by Blockchain technology and exchanged through Blockchain-based wallets, the transactions initiated by the customer will reflect in the general ledger in real time. This is contrary to the current system, wherein the ledger balance is updated at the end of the day, causing a severe lag. Digital rupee will enable real-time tracking, eliminate the hassles of following up with banks and financial institutes, prevent fraudulent activities like money-laundering, and pave the way for faster account settlements.

Improved feasibility: Unlike physical currencies, the digital rupee system will not be vulnerable to the risk of damage or wear and tear during exchange. It also eliminates the need for customers to maintain and carry physical cash or stand in long queues at the bank to get their cheques cleared. This will furthermore allow to liquify and scale cross-border transactions seamlessly.

Reduced regulatory requirement: Remittances for trading, purchases, or any other purpose issued in the overseas market demand compliance with customs regulations and extensive documentation. Considering that the digital rupee will be entirely centralised and monitored by the central bank, along with third party organisations, the transactions will involve complete safety, reliability, and usability, and eliminate the hassle of traditional paper-based documentation.

Zero conversion difference: Foreign exchange rates tend to fluctuate constantly. With the difference in time zones and days between countries, foreign exchange transactions have a settlement-related risk associated with them. This can be reduced, if not entirely eliminated, using digital rupee, which allows for real-time transactions.

Also read | Digital rupee has wider scope but it can’t replace physical currency: SBI chief

The bottom line

The RBI envisages digital rupee as the next-generation universal, seamless, and fastest payment mode that will solve issues pertaining to cash placement and tracking, cross-border transactions, tax evasion, and production of counterfeit notes. With the launch of CBDC, India has marched forward towards promoting a cashless economy and digitising its financial ecosystem. What remains is for the government to make a smooth and well-thought-out transition.