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Introduction

The Reserve Bank of India (RBI) has recently recommended placing the interlinking of Central Bank Digital Currencies (CBDCs) on the agenda for the 2026 BRICS Summit, which India will host. Building on the 2025 Rio Declaration, this proposal aims to create a technological and settlement-level linkage for the digital Rupee and other BRICS digital currencies to streamline cross-border payments.

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Potential Benefits of the Framework

For the Financial System

• Reduced Intermediation Costs: By bypassing the legacy “correspondent banking” model, CBDC linkage can reduce cross-border transaction costs by nearly 50%.
  Eg: Traditional cross-border payments currently incur fees of 3–6%, which could be slashed through direct peer-to-peer digital settlement.
• Real-Time Settlement: It eliminates the “T+2” settlement delays, allowing for near-instantaneous transfers between central banks.
  Eg: The mBridge pilot involving China and UAE demonstrated an 80% reduction in transaction time.

For International Trade

• Enhanced Trade Efficiency: Small and medium enterprises (MSMEs) can settle invoices directly in local digital currencies, avoiding the complexities of the US dollar as an intermediary.
  Eg: Intra-BRICS trade exceeds $500 billion annually, much of which could benefit from reduced currency conversion friction.
• Resilience Against Sanctions: Direct digital corridors allow trade to continue with partners who may be restricted from the SWIFT network.
  Eg: Facilitating payments to Russia and Iran becomes feasible outside the dollar-centric infrastructure.

For Monetary Sovereignty

• Strategic Autonomy: Reducing dependency on the US dollar for international reserves and settlements safeguards India’s economy from US monetary policy spillovers.
• Improved Transparency: Blockchain-based records provide a “digital fingerprint” that helps central banks track money laundering and tax evasion.
  Eg: The e-Rupee’s programmability allows for targeted trade finance with automated compliance checks.

Potential Challenges of the Framework

For the Financial System

• Cybersecurity Risks: A centralized or semi-centralized interlinked system becomes a “single point of failure” for massive cyber-raids.
• Bank Disintermediation: If retail or wholesale users shift deposits into “safer” CBDC wallets, commercial banks may face a liquidity crunch and reduced credit creation.

For International Trade

• Trade Imbalances: Countries with significant trade surpluses may accumulate large digital currency balances of another nation with limited domestic use.
  Eg: The “Rupee-Rouble” experience showed Russia accumulating excess Rupees it could not utilize, requiring reinvestment in Indian bonds.
• Geopolitical Retaliation: Moving away from the dollar may provoke tariff-based retaliation or diplomatic friction with the US.
  Eg: Recent US political warnings mentioned 100% tariffs on countries actively pursuing de-dollarization.

For Monetary Sovereignty

• Capital Control Leaks: Rapid cross-border digital flows could undermine the RBI’s ability to manage capital account restrictions.
• Technological Hegemony: Reliance on a shared platform might allow a technologically superior partner (like China) to set the standards and governance rules.
  Eg: Concerns exist over China’s digital yuan dominance in current multi-CBDC projects like mBridge.

Measures to Mitigate Challenges

• Bilateral FX Swaps: Implement periodic (weekly/monthly) settlement of net transaction positions using Forex swap arrangements to manage trade asymmetries.
• Layered Interoperability: Use Common API standards rather than a single shared platform to maintain each country’s technical autonomy.
• Calibrated Diplomacy: Frame the initiative as a “technical efficiency” project for the Global South rather than an ideological “anti-dollar” bloc.
• Sandbox Testing: Launching limited-use pilots for specific sectors like tourism or energy before a full-scale rollout across all BRICS members.

Conclusion

The RBI’s proposal is a masterclass in “calibrated pragmatism,” balancing the quest for financial efficiency with strategic autonomy. While it does not seek to dismantle the dollar’s role overnight, it creates a vital redundant infrastructure for a fragmented global economy. By navigating the technological and geopolitical hurdles with pilot-driven caution, India can lead the transition toward a more resilient and multipolar global financial order.

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