India’s digital currency project may finally have found its real use case. The Reserve Bank of India is in talks with partner countries to build cross-border transaction rails using central bank digital currencies. That matters more than any domestic pilot milestone. If it works, CBDCs could cut remittance costs, reduce settlement time, and challenge a payments architecture still dominated by correspondent banks and SWIFT.
India’s case is obvious. It remains the world’s largest remittance recipient. World Bank estimates put inflows at $129 billion in 2024, after $125 billion in 2023. These flows support the external account, but they are still slow, costly and routed through multiple banking layers, each taking a fee.
At its simplest, a CBDC is sovereign money in digital form and therefore a liability of the central bank, like cash. The RBI launched the wholesale pilot on November 1, 2022, and the retail pilot on December 1, 2022. Since then, the digital rupee has expanded gradually, but the pace has been deliberate rather than aggressive.
That caution is sensible. A central bank digital currency is not just another payment app. It can be made programmable, traceable and interoperable. Each feature creates both utility and risk. The RBI has therefore resisted the temptation to force a mass retail rollout. Its own position has increasingly pointed to cross-border payments as the more meaningful use case.
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Cross-border payments the real CBDC use case
With UPI already entrenched in domestic retail payments, a local CBDC does not solve an obvious unmet problem. Cross-border payments are different. They remain fragmented, compliance-heavy and costly, especially for small-value transfers.
An international transfer from Dubai to Delhi still passes through several intermediaries. Settlement can take time, and fees remain meaningful even in major corridors. World Bank corridor data for UAE-India show that costs vary sharply by provider, underlining how dependent users still are on intermediary structures.
CBDC-based systems aim to collapse that chain into a shared settlement layer backed by participating central banks. The strongest proof of concept has come from projects such as mBridge, led by the BIS Innovation Hub with central banks including China, Hong Kong, Thailand and the UAE. BIS says the project reached minimum viable product stage in 2024 after successful pilots of real-value transactions.
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India’s current discussions with partner countries suggest that it wants to move from pilot logic to practical architecture.
But technology alone will not create a cross-border CBDC network. It will scale only where both sides have a clear reason to join. India’s most plausible early corridors are those with dense remittance or trade flows, such as the UAE, and perhaps later wider BRICS-linked payment arrangements. Even there, the hard questions are not merely technical. Participating central banks and banks have to agree on who supplies foreign-exchange liquidity, how imbalances are funded, and what rulebook governs final settlement across jurisdictions.
That is now central to the debate. Reuters reported in January that the RBI’s BRICS proposal is being discussed alongside questions of interoperability, governance rules and bilateral swap arrangements to handle trade imbalances. World Bank work on cross-border CBDC experiments similarly highlights FX conversion, liquidity management, legal enforceability and settlement design as core constraints on real-world adoption.
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CBDC interoperability will decide project success
This is where the real challenge lies. Building cross-border CBDC rails is not just about technology. It requires interoperability across platforms, rules and legal systems. Instant settlement on a shared ledger means little if data rules, capital controls, anti-money laundering standards and supervisory protocols differ across jurisdictions. BIS and World Bank work both stress that governance and regulatory alignment are central, not peripheral, to implementation.
A payment can be technologically instantaneous and still be slowed by legal or regulatory friction. Countries also vary in their approach to convertibility, privacy and financial openness. Aligning those differences is a political project as much as a technical one.
CBDCs offer an alternative to stablecoins
There is also a larger strategic question. Cross-border payments today are still anchored in the US dollar and the institutions that support it. For many emerging economies, that dependence creates vulnerability to external shocks and, in some cases, sanctions risk. CBDCs are therefore being discussed as part of a more multipolar payments system. Reuters’ January report on the RBI’s BRICS proposal captured that logic, while also noting that Indian officials are careful not to frame the exercise as a straightforward de-dollarisation project.
That does not mean the dollar is about to be displaced. It means countries want optionality.
The RBI’s position is sharper when it comes to stablecoins. Privately issued tokens pegged to fiat currencies promise many of the same efficiencies as CBDCs: instant settlement, programmability and lower transaction costs. But they also raise a question that central banks cannot ignore. If stablecoins become systemically important, control over money-like instruments begins to shift from public authorities to private issuers. The RBI’s public FAQs emphasise that central bank money remains a sovereign liability and distinguish it clearly from private digital assets.
The RBI is right to resist that drift. Central bank money must remain the ultimate settlement asset. In that sense, CBDCs are not merely an innovation project. They are also a defensive response to preserve the public character of money in a digital financial system.
Digital rupee design still poses difficulties
None of this makes the design choices easier. Policymakers still have to decide how far a CBDC should resemble cash. Should it be account-based or token-based? How much privacy should it allow? How much traceability is necessary for compliance? The RBI has opted for a hybrid approach, but those choices will need repeated revision as use cases expand.
India does have one advantage. UPI showed that public digital infrastructure can scale when the use case is clear, the design is simple and the institutional backing is strong. But the lesson from UPI is not that every payments innovation will scale automatically. It is that adoption follows utility.
That is the real test for the digital rupee. If India wants its CBDC project to matter, it should stop treating domestic transaction counts as the main scorecard. The real breakthrough will come only if the RBI can help build cross-border rails that make remittances cheaper, settlements more reliable, and the global payments system a little less dependent on old bottlenecks.