The Reserve Bank of India (RBI) is set to revolutionize cross-border transactions by proposing an expansion of the Real-Time Gross Settlement (RTGS) system to include major currencies such as the United States dollar, Euro, and British pound. This significant development, announced by RBI Governor Shaktikanta Das at the RBI@90 conference in New Delhi, aims to facilitate smoother and more efficient international payments through bilateral and multilateral agreements.
Enhancing cross-border payments
During his address, Das highlighted the feasibility of incorporating these currencies into the RTGS framework, emphasizing the potential benefits for both individuals and businesses engaged in international trade. “The feasibility of expanding RTGS to settle transactions in major trade currencies such as USD, EUR, and GBP can be explored through bilateral or multilateral arrangements,” he stated. This expansion could lead to reduced costs and enhanced efficiency in cross-border transactions, benefiting Indians who frequently send or receive money internationally.
Remittances, in particular, represent a vital area for improvement in cross-border payments. “We believe there is immense scope to significantly reduce the cost and time for such remittances,” Das said. Given that India is one of the largest recipients of remittances globally, this initiative could have far-reaching implications for millions of families relying on financial support from abroad.
Current RTGS system and Its limitations
The RTGS system allows for immediate fund transfers between banks, making it a cornerstone of the Indian financial system. Currently, the minimum amount for RTGS transactions is ₹2 lakh, with no upper limit. However, these transactions are confined to the Indian rupee. By extending the RTGS system to include foreign currencies, the RBI aims to facilitate more direct and efficient transactions without the need for conversion to rupees, which often incurs additional costs and delays.
Project Nexus: A step forward
India has already taken significant strides toward enhancing its cross-border payment systems through initiatives like Project Nexus. This project aims to interlink India’s domestic instant payment systems with those of Malaysia, the Philippines, Singapore, and Thailand. By standardizing domestic Instant Payment System (IPS) connections, Project Nexus allows operators to establish a single connection to the Nexus platform, streamlining the process of linking with multiple countries. This innovative approach eliminates the need for customized connections, thereby simplifying the cross-border payment landscape.
In addition, India has established bilateral payment linkages with countries such as Singapore, the United Arab Emirates, Mauritius, Sri Lanka, and Nepal, further enhancing its position in the global remittance market.
The importance of cross-border payments
According to the Bank of England, global cross-border payments are projected to exceed $250 trillion by 2027, underscoring the critical need for efficient payment systems. India’s remittances alone surged to a record USD 111 billion last year, solidifying the country’s status as the largest recipient of remittances worldwide, as reported by the World Migration Report 2024 from the International Organization for Migration.
CBDC: A game changer for payments
Central Bank Digital Currencies (CBDCs) are also poised to play a crucial role in facilitating efficient cross-border payments. CBDCs are digital forms of fiat currency issued and backed by central banks. India has already launched both wholesale and retail CBDCs, positioning itself as a leader in the digital currency space.
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Das highlighted the potential for CBDCs to improve cross-border transactions, stating that they could serve as an efficient medium for international payments. This could further reduce transaction times and costs, benefiting not only individuals but also businesses engaged in international trade.
Challenges and future prospects
Despite the promising outlook, challenges remain. Das acknowledged that countries may prefer to develop their systems based on domestic considerations, which could hinder standardization efforts. However, he expressed optimism that a “plug-and-play” system could be developed, allowing countries to replicate India’s successful digital public infrastructure while maintaining their sovereignty.
As the RBI continues to explore the expansion of RTGS to include major global currencies, the potential benefits for Indians engaged in cross-border transactions are immense. By improving the efficiency, cost-effectiveness, and speed of international payments, this initiative could significantly enhance the financial landscape for millions of individuals and businesses across the nation. The future of cross-border payments in India looks promising, with advancements in both RTGS and CBDC paving the way for a more integrated and efficient global financial system.
