Emerging and developing economies need to develop effective forex liquidity mechanisms to boost the use of local currencies in cross-border payments, RBI Governor Shaktikanta Das said.

“The use of local currencies in cross-border payments can help to shield the EMDEs (emerging market and developing economy) from global shocks, protect against exchange rate fluctuations and encourage the development of local forex and capital markets,” Das said.

While multilateral payment platforms that support multiple currencies would offer a way to promote such local-currency payments, FX and liquidity risks associated with EMDE currencies at the moment can make the operation of such platforms more challenging, he added.

Key challenges

“The key challenges to existing cross border payments continue to be high cost, low speed, limited access and insufficient transparency. Faster, cheaper, more transparent, and more inclusive cross-border payment services would deliver widespread benefits to people and economies worldwide. It would also support economic growth, international trade and financial inclusion,” Das said.

He was speaking at the Finale of the G20 TechSprint 2023, a global long-form hackathon organised by BIS Innovation Hub with the G20 Presidency. The fourth edition of G20 TechSprint was launched in May 2023 with the theme ‘Technology solutions for cross-border payments’.

The event focussed on three problem statements–reducing illicit finance risk, forex and technology solutions for currency settlement, and technology solutions for multilateral cross border Central Bank Digital Currency (CBDC) platforms. It received 93 proposals across the three problem statements, of which three best submissions, one for each problem statement, were declared winners.

Solutions

The solutions revolved around encouraging solutions in forex and liquidity to enable settlement in more EMDE currencies; AML/CFT (Anti-money Laundering and Counter-terrorism Financing) technology solutions for multilateral platforms to reduce the risk of illicit finance and increase efficiency of the screening processes.

Solutions for CBDC comprised multilateral cross-border CBDC platforms which can enable interoperability across multi-CBDC platforms or domestic payment systems to reduce operational cost, increase efficiency and ensure consistent standards across multiple jurisdictions.

“Cross-border payments can be made more efficient through adoption of CBDCs and this is an area which should receive close attention,” Das said adding that an interoperable platform would greatly benefit the cross-border payments ecosystem and make such payments cheaper, faster and more secure.

On its part, RBI is slowly and steadily expanding the CBDC pilot to more banks, cities, people and use cases and the empirical data being generated will “go a long way in shaping the policies and future course of action”, he said.