While the Reserve Bank of India (RBI) only recently acknowledged that it is studying the proposal for issuing a Digital Rupee, central banks around the world have made considerable progress in recent months on the interoperability of digital currencies and how they should be designed globally. The RBI certainly has its task cut out for it and should constantly monitor the global conversation on Central Bank-backed Digital Currencies and engage actively with multi-country projects. Earlier this week, the Bank for International Settlements (BIS) published a paper which said that central banks need to collaborate with each other to create CBDCs that are compatible with others, which could create a diverse and competitive market for services. The BIS is a global body of central banks, of which the RBI is a member. "At least conceptually, single mCBDC systems and inter-linkages can significantly reduce existing frictions in cross-border payments (although they also come with governance, technical and cooperation challenges). Yet a condition for their success is the underlying compatibility," it said. While digital currencies have several benefits for the domestic economy in terms of monetary transmission, reducing banking intermediation and improving access to financial services, CBDCs can actually improve payments between institutions, particularly international institutions. Most central banks globally are developing their own digital currencies and could launch them in the next two to three years. According to a January 2020 survey covering 66 central banks by the Bank of International Settlements, 80% of central banks across the world were engaged in…
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