RBI Proposes Linking BRICS Digital Currencies to Ease Cross-Border Trade

Syllabus: GS3/Economy

Context

• Recently, the Reserve Bank of India (RBI) has recommended that the linkage of BRICS Central Bank Digital Currencies (CBDCs) be placed on the agenda of the 2026 BRICS Summit to simplify cross-border trade, tourism, and payment settlements, which India will host later this year.

Background: Linking CBDCs to BRICS Nations

• Rio de Janeiro BRICS Declaration (2025): It emphasized interoperability among member nations’ payment systems.
• India has long advocated for digital payment integration through its digital rupee (e₹), already tested in offline transactions, programmable payments, and fintech wallet integration.

Objectives The Proposed BRICS CBDC Linkage

• Facilitate Cross-Border Payments: Enabling instant, low-cost transactions across member nations for trade, tourism, and investment.
• Reduce Dollar Dependence: Offering an alternative settlement mechanism that bypasses the US dollar-dominated global system.
• Strengthen Financial Sovereignty: Enhancing each member’s control over its monetary policy and cross-border financial flows.
• Promote Technological Cooperation: Building shared digital infrastructure and setting global standards for CBDC interoperability.
• It envisions a digitally connected ecosystem where the central banks of Brazil, Russia, India, China, and South Africa, along with newer BRICS members such as Iran, the UAE, and Indonesia can settle trade and tourism payments seamlessly through their respective CBDCs.
  • If approved, this would be the first formal proposal to interlink digital currencies among BRICS members, signaling a new era of financial collaboration.

Technical Framework and Implementation Challenges

• Interoperability Standards: Ensuring that different CBDC systems can communicate seamlessly.
• Governance and Regulation: Defining oversight mechanisms and data-sharing protocols.
• Trade Settlement Imbalances: Managing uneven trade flows, possibly through bilateral foreign exchange swaps.
• Cybersecurity and Privacy: Safeguarding transactions across multiple national jurisdictions.
  • Technological sovereignty concerns may slow down progress, as some nations might hesitate to adopt digital platforms designed by others.

CBDCs vs. Stablecoins: India’s Position

• India continues to promote the e-rupee as a safer alternative while global enthusiasm for CBDCs has moderated amid the rise of stablecoins.
• Recently RBI has warned that stablecoins ‘raise significant concerns for monetary stability, fiscal policy, and systemic resilience’, emphasizing that CBDCs are state-backed, regulated, and more transparent.

Learning from Past Currency Collaboration Attempts

• Past efforts by BRICS countries to settle trade in local currencies, particularly between India and Russia have met obstacles. 
• Russia’s accumulation of surplus rupees with limited usability led to regulatory adjustments by the RBI, allowing the investment of rupee balances in Indian government securities.
• The CBDC framework may involve regular (weekly or monthly) settlements through swap arrangements, ensuring liquidity balance among participants to avoid similar issues.

Looking Ahead: A Long Road to Integration

• Though still at a conceptual stage, the BRICS CBDC linkage could redefine how emerging markets conduct international trade. If successfully implemented, it would:
  • Enhance transactional efficiency;
  • Support currency diversification;
  • Strengthen regional economic integration;
• However, its realization depends on political will, technical collaboration, and regulatory harmonization among a diverse group of economies.

Source: TH