Building Bridges: On Central Bank’s Digital Currency and BRICS

The Reserve Bank of India (RBI) has suggested that linking the Central Bank Digital Currencies (CBDCs) of BRICS countries be placed on the agenda of the 2026 BRICS Summit in India.

• This follows India’s G-20 (2023) push for international cooperation and standard-setting in the field of digital currencies.

RBI’s Consistent Policy Approach

• Against Private Crypto: RBI has repeatedly warned that private cryptocurrencies expose users to volatility, fraud, and wealth erosion.
• Pro-CBDC Stance: RBI supports CBDCs due to sovereign backing, system stability, and compatibility with regulated payment systems.
• Blockchain Acceptance: RBI distinguishes between risky crypto-assets and useful blockchain-based payment infrastructure.

Limits of Domestic CBDC in India

• UPI Dominance: India’s Unified Payments Interface (UPI) already provides fast, cheap, and universal digital payments.
• Low Switching Incentive: CBDC lacks compelling domestic advantages to displace an entrenched and trusted UPI ecosystem.
• Strategic Pivot: Hence, RBI’s focus is shifting from domestic retail use to cross-border payment applications.

Advantages of Cross-Border CBDC Integration

• Security: Helps eliminate money laundering, black money, and “Hawala” transactions through real-time data tracking for tax departments.
• Immutable Records: Blockchain creates transparent and tamper-proof transaction histories.
• Regulatory Embedding: Payments can be coded to link with national identity systems and tax authorities.
• De-dollarisation: Payments to Russia and Iran become feasible without reliance on SWIFT and the US Dollar for trade.
• Settlement Efficiency: Direct CBDC corridors reduce delays, costs, and reliance on intermediaries.

Strategic and Geopolitical Risks

• Dollar Pushback: Reduced dollar dependence may provoke U.S. retaliation, including trade tariffs. Example: Donald Trump has threatened 100% tariffs on countries that abandon the dollar.
• Political Sensitivity: CBDC corridors among BRICS may be viewed as a financial bloc formation.
• Trade Risk: Additional tariffs could reduce the price competitiveness of Indian exports, particularly in tariff-sensitive sectors such as textiles, engineering goods, and chemicals.

Cost–Benefit Assessment

• Financial Transparency Gains: Improved monitoring of cross-border flows strengthens financial integrity.
• Payment Sovereignty: Reduces exposure to geopolitical weaponisation of payment networks.
• Trade Facilitation: Faster settlements support energy and commodity trade with sanctioned partners.
• Retaliatory Risk Manageable: Even if tariffs rise, the gains from payment sovereignty and reduced external dependence may outweigh the uncertainty of trade losses.

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Conclusion

BRICS-linked CBDC systems can enhance transparency and payment sovereignty, but must be pursued with calibrated diplomacy to manage geopolitical backlash.

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