IAS/UPSC Coaching Institute  

22 Jan 2026 : Building bridges

 Editorial 1: ​Building bridges

Context

The advantages of cross-border CBDC payments are likely to outweigh the associated costs.

 

Introduction

India’s push for CBDC-based cooperation within BRICS reflects a careful attempt to balance financial innovation, regulatory caution, and geopolitical strategy. Guided by the RBI’s conservative yet forward-looking stance, the proposal seeks to harness blockchain efficiency while limiting the systemic risks associated with private cryptocurrencies.

 

RBI’s Proposal on BRICS CBDC Linkages

  • The Reserve Bank of India (RBI) is reportedly exploring ways to encourage BRICS nations to interlink their Central Bank Digital Currencies (CBDCs).
  • It has advised the Union government to place this proposal on the agenda of the 2026 BRICS Summit, to be hosted by India.
  • This move builds naturally on India’s G-20 presidency in 2023, which emphasised global cooperation and standardisation in digital currencies.

 

RBI’s Consistent Position on Cryptocurrencies

  • The RBI has remained highly cautious about private cryptocurrencies, repeatedly advocating a ban on them.
  • At the same time, it has been supportive of CBDCs, highlighting their multiple policy and payment uses.
  • This stance reflects a balanced approach—acknowledging the risks of crypto assets while recognising the utility of blockchain technology.

 

Risks of Private Cryptocurrencies

  • Widespread use of private cryptocurrencies exposes the public to extreme price volatility.
  • There is a high potential for fraud, misuse, and financial manipulation.
  • Unregulated adoption can lead to significant erosion of household wealth, making a strong regulatory response necessary.

 

Advantages of CBDCs

  • CBDCs carry a sovereign guarantee, making them fundamentally safer than private crypto assets.
  • They are non-interest bearing, which discourages speculative investment.
  • Their design ensures they function primarily as a payment instrument, not as a vehicle for returns.

 

Limited Domestic Utility in India

  • Within India, the scope for a retail CBDC remains limited.
  • The UPI ecosystem already provides fast, reliable, and widely adopted digital payment infrastructure.
  • Given UPI’s massive head start, a domestic CBDC is unlikely to achieve comparable penetration.

 

Rationale for Cross-Border CBDC Use

  • Using CBDCs for international payments is a more practical and strategic approach for India.
  • Cross-border transactions are often channels for black money and money laundering.
  • Blockchain-based systems can enhance transparency, traceability, and accountability in such flows.

 

Potential BRICS Payment Framework

  • A BRICS-wide CBDC arrangement could mandate links with national identity systems or tax authorities.
  • Such integration would create immutable transaction records, capturing origins and destinations of funds.
  • This would significantly strengthen financial oversight across borders.

 

Geopolitical and Strategic Implications

  • CBDC-based payments could ease transactions with countries like Russia and Iran, which lack access to SWIFT.
  • However, reducing reliance on the US dollar may provoke backlash from the United States, including threats of additional tariffs.
  • With steep tariffs already in place, India must assess whether further penalties would materially harm its interests.
  • On balance, the economic and transparency gains from cross-border CBDCs may still outweigh the geopolitical costs.

 

Conclusion

While domestic CBDC adoption in India may remain limited due to UPI’s dominance, its use in cross-border payments offers clear advantages. Enhanced transparency, reduced illicit flows, and alternatives to SWIFT could outweigh geopolitical frictions, making CBDC collaboration a strategically sound choice.