RBI to step up push for rupee internationalisation, explores faster cross-border payments

He cited Unified Payments Interface (UPI) as an example of how payments can be made almost instantaneously.

“Look at UPI, for example. It is instantaneous. You have to wait for some hours, some days for your foreign remittances to take place. So, there is a lot of work that is being done over there,” he said.

The governor said several options were being discussed to improve cross-border payments, including linking payment systems of different countries and the possible use of central bank digital currencies (CBDCs).

However, these proposals were still at the discussion stage.

The RBI is also seeking to increase the use of local currencies in international trade.

Malhotra said India already had arrangements with a number of countries to facilitate trade in local currencies, although the volumes remained relatively small.

“We need to expand that,” he said.

As part of this effort, the RBI has started entering into memoranda of understanding with central banks of other countries
to create greater awareness among importers and exporters about the benefits and mechanisms for using local currencies in international trade.

The RBI has so far signed such arrangements with the UAE, Mauritius, the Maldives and Indonesia, Malhotra said.

“They have given us encouraging results and we will continue our efforts to internationalise the rupee and promote the use of local currencies for cross-border payments and for trade,” he said.

The push comes as central banks globally explore alternatives to traditional correspondent banking arrangements, which can make cross-border transactions slower and more expensive.

For India, wider use of the rupee in trade could also reduce dependence on currencies such as the US dollar and strengthen the rupee’s role in international commerce.

On the risks, Malhotra said, “I think if you were to ask me two important risks. One is uncertainty. I’ll put it a little differently though. One is geopolitical uncertainty, which we are facing. And it is not only in the West which we are facing.”

“But a lot of other uncertainties, including trade-related, state-directed uncertainties. This is one. And the other is cyber risk,” he said.

“Because of interconnectedness, I think of these two risks. But I must mention that the Indian economy and the Indian banking sector is very well positioned to meet these risks, and meet these challenges. As mentioned, the banking sector is very robust… Strong growth of 17-18%. GNPA is less than 2% and net NPA is less than 0.5%. And good profitability,” Malhotra said.

“The macroeconomic fundamentals of the Indian economy are very strong,” he said.

“Growth has been so resilient. Inflation is more or less under check. And all balance sheets are looking good. The external sector too is quite robust. We have good forex reserves,” Malhotra said.

“And I would say every kind of shock, the government has taken, the government and all stakeholders have actually taken this as an opportunity… Whether it’s the epidemic, crisis, or the COVID. What is amazing and what is important to keep in mind is that in every crisis, you not only meet them, but you come out of it much stronger,” the RBI governor said.