Reference Article: Editorial | The Hindu – Building bridges: On Central Bank Digital Currency and BRICS
UPSC Relevance:
GS Paper II – International Relations (BRICS, Global Financial Architecture)
GS Paper III – Indian Economy (Monetary Policy, Digital Payments, Financial Stability)
The Reserve Bank of India’s reported proposal to explore linking the Central Bank Digital Currencies (CBDCs) of BRICS countries reflects India’s push to shape global digital finance norms. This builds on India’s G20 presidency emphasis on cooperation and standardisation in digital assets, while remaining consistent with the RBI’s cautious approach to private cryptocurrencies and its support for sovereign-backed digital currencies.
RBI’s Position on Digital Currencies
- Strongly sceptical of private cryptocurrencies due to volatility, fraud risks and wealth erosion
- Supportive of CBDCs as sovereign-guaranteed, non-interest-bearing and stable payment instruments
- Sees blockchain as useful for payments infrastructure rather than speculative investment
Why Cross-Border CBDCs Matter for India
- Domestic CBDC utility is limited due to UPI’s overwhelming success and first-mover advantage
- Cross-border payments remain costly, opaque and prone to money laundering
- Blockchain-based CBDC systems can ensure transparency, traceability and compliance
- Linking CBDCs within BRICS could mandate identity or tax linkage, curbing illicit flows
Geopolitical and Economic Implications
- CBDC-based settlements could bypass SWIFT, easing payments to sanctioned countries such as Russia and Iran
- This aligns with BRICS’ broader push to reduce dollar dependence
- However, it risks retaliation from the U.S., which has warned of tariffs against de-dollarisation efforts
- With steep U.S. tariffs already imposed, incremental costs may be outweighed by strategic and transactional gains
Risks and Way Forward
- Potential diplomatic fallout with the U.S. and heightened trade tensions
- Need for robust safeguards against misuse and regulatory arbitrage
- India must weigh monetary sovereignty, financial transparency and geopolitical costs carefully
- A calibrated, multilateral framework within BRICS could maximise benefits while managing risks
Sample UPSC Mains Question
Critically examine India’s proposal to link Central Bank Digital Currencies (CBDCs) among BRICS countries. Discuss its economic benefits, risks and geopolitical implications in the context of global financial realignments.