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Building Bridges with Central Bank Digital Currency in BRICS

Exploring the potential benefits and risks of cross-border CBDC payments in the BRICS framework.
Dhinesh BalasubramanianDhinesh Balasubramanian
••5 mins read
BRICS-linked CBDCs promise transparency in payments but carry economic and geopolitical risks
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1. Context: RBI’s Push for BRICS-linked CBDCs

The Reserve Bank of India (RBI) has reportedly suggested that India place a proposal for linking the Central Bank Digital Currencies (CBDCs) of BRICS countries on the agenda of the 2026 BRICS Summit to be hosted in India. This reflects a calibrated shift from domestic experimentation to international application of CBDCs.

This proposal builds on India’s earlier leadership during its G-20 Presidency (2023), where it advocated international cooperation and standard-setting on digital currencies and payment systems. The focus has been on leveraging blockchain-backed sovereign currencies rather than private crypto-assets.

For India’s economic governance, this move signals an attempt to shape emerging global financial architecture rather than merely react to it. Ignoring this opportunity could leave India rule-taker in future cross-border digital payment systems dominated by other blocs.

“CBDCs can provide an impetus to cross-border payments by improving efficiency, reducing costs and settlement risks.” — Bank for International Settlements (BIS)

This approach aligns monetary innovation with strategic autonomy; failure to engage could weaken India’s influence over future global payment norms.

2. RBI’s Distinct Approach: CBDCs vs Private Cryptocurrencies

The RBI has historically taken a conservative stance on private cryptocurrencies, repeatedly highlighting risks such as volatility, fraud, and speculative bubbles, and even advocating a ban. At the same time, it has been progressive on CBDCs, viewing them as safe digital extensions of sovereign currency.

CBDCs differ fundamentally from private cryptocurrencies. They carry a sovereign guarantee, are non-interest-bearing, and are not designed as speculative investment assets. This design reduces incentives for hoarding or destabilising capital flows.

From a governance perspective, this differentiation protects citizens from wealth erosion while still allowing the state to harness blockchain efficiency. If blurred, financial stability risks and regulatory arbitrage could increase.

“A CBDC is essentially the same as a banknote, but in a digital form.” — Shaktikanta Das, Governor, RBI

The RBI’s logic is to separate technological utility from financial speculation; ignoring this distinction could undermine monetary and consumer protection objectives.

3. Limited Domestic Utility of CBDC in India

In India’s domestic payments ecosystem, the Unified Payments Interface (UPI) has already achieved near-universal adoption, offering speed, reliability, and low cost. This creates a significant first-mover advantage that a domestic retail CBDC is unlikely to displace in the short term.

As a result, the marginal gains from CBDC for domestic retail payments remain limited. This reality explains why RBI’s strategy increasingly focuses on cross-border applications, where existing systems are costlier, slower, and less transparent.

If policy continued to prioritise domestic CBDC use-cases alone, resources may be inefficiently allocated with limited public value addition.

Redirecting CBDC efforts to international payments ensures policy relevance and better cost-benefit outcomes.

4. Cross-border Payments and Transparency Gains

Cross-border payments remain a major channel for black money and laundering, owing to opacity, multiple intermediaries, and jurisdictional fragmentation. Blockchain-based CBDCs can create transparent, immutable transaction records.

Such systems can be programmed to capture key details like origin, destination, and institutional linkage, improving traceability without necessarily compromising sovereignty. A BRICS-level agreement could further mandate linkages with national identity systems or tax authorities.

For governance, this strengthens financial integrity and enforcement capacity. Ignoring these possibilities would perpetuate leakages and regulatory blind spots.

“Improving the transparency of financial flows is critical to combating illicit finance.” — Financial Action Task Force (FATF)

Enhanced transparency through CBDCs directly supports anti-money laundering and fiscal accountability objectives.

5. Strategic and Geopolitical Implications

CBDC-linked payment systems could ease India’s transactions with countries like Russia and Iran, which are excluded from the SWIFT network. This has practical economic benefits for trade continuity under sanctions regimes.

However, reduced reliance on the US dollar and SWIFT may provoke geopolitical pushback. The article notes warnings by U.S. President Donald Trump about imposing additional tariffs on BRICS countries moving away from the dollar, even as 50% tariffs are already in place.

India must weigh these costs against benefits. Overlooking this dimension could expose India to economic coercion without adequate preparedness.

Strategic autonomy in payments enhances resilience, but requires calibrated diplomacy to manage external pressures.

6. Balancing Benefits and Risks of BRICS CBDC Integration

The potential gains from cross-border CBDC systems include lower transaction costs, faster settlements, and improved compliance. At the same time, risks arise from geopolitical retaliation and coordination challenges among BRICS members.

Impacts:

  • Improved transparency in cross-border flows
  • Reduced dependence on dollar-dominated systems
  • Potential exposure to trade retaliation measures

Policy prudence lies in gradual integration and multilateral consensus-building rather than abrupt shifts.

Balanced implementation ensures that technological gains are not offset by strategic or economic shocks.

Conclusion

India’s support for a BRICS-linked CBDC framework reflects pragmatic monetary innovation aligned with strategic autonomy. While domestic use-cases remain limited due to UPI’s success, cross-border applications offer significant governance and integrity benefits. Going forward, careful calibration between efficiency gains, transparency, and geopolitical risks will determine whether CBDCs strengthen India’s long-term economic resilience and global financial influence.

Quick Q&A

Everything you need to know

Definition and Concept: A Central Bank Digital Currency (CBDC) is a digital form of a country’s sovereign currency issued and regulated by its central bank. Unlike cryptocurrencies, which are decentralized and often speculative in nature, CBDCs carry the backing and guarantee of the government.

Key differences with cryptocurrencies:

  • Sovereign backing: CBDCs are legal tender guaranteed by the state; private cryptocurrencies are not.
  • Volatility: CBDCs maintain stable value, whereas cryptocurrencies like Bitcoin can fluctuate dramatically.
  • Purpose: CBDCs are designed primarily for secure payments and financial inclusion; cryptocurrencies are often used as investment or speculative assets.
  • Regulation: CBDCs operate within the financial system under strict regulatory oversight, while cryptocurrencies face inconsistent regulations globally.

Example: The RBI’s Digital Rupee is India’s CBDC initiative, intended for retail and wholesale digital payments, contrasting with private cryptocurrencies like Bitcoin, which the RBI has cautioned against due to volatility and fraud risks.

Strategic Importance: Linking BRICS CBDCs with India’s digital currency is aimed at facilitating efficient cross-border payments. Traditional international payment channels like SWIFT can be slow, expensive, and, in some cases, politically restricted (e.g., payments to Russia or Iran). A CBDC network ensures instant, transparent, and cost-effective settlement of transactions.

Benefits:

  • Enhances transparency and reduces risks of money laundering or black money flows.
  • Strengthens India’s position in global digital finance and international monetary cooperation.
  • Provides a mechanism to bypass sanctions or restrictions in specific scenarios, while staying within a legal framework.

Example: For instance, India’s CBDC could allow seamless payments to Russia for energy imports despite SWIFT limitations. This makes India a key player in fostering an alternative, blockchain-based international payment infrastructure among BRICS nations.

Operational and Technical Challenges: Integrating multiple CBDCs requires a standardized blockchain infrastructure across diverse financial systems, each with its own regulations, currencies, and technological capabilities. Ensuring interoperability and cybersecurity is complex.

Geopolitical and Economic Risks:

  • Moves away from the US dollar may trigger political pushback, as evidenced by potential threats of tariffs from the US.
  • Sanctions regimes and differing economic policies among BRICS countries could complicate seamless adoption.
  • Currency fluctuations and trust issues may arise if some CBDCs are more stable than others.

Regulatory Concerns: Central banks need to balance transparency with privacy. Excessive surveillance of cross-border transactions could face public or political resistance. Additionally, any misuse in sanctioned or high-risk transactions could impact India’s global credibility.

Overall, while the strategic advantages are significant, technical, regulatory, and geopolitical risks must be carefully mitigated.

Blockchain Technology: CBDCs rely on blockchain-ledger systems which record every transaction immutably. This provides a clear audit trail for regulators and tax authorities.

Mechanisms for Transparency:

  • Transactions can be linked to national identity numbers or tax IDs, making it easier to track legitimate vs illicit flows.
  • Cross-border settlements can be monitored in real-time, preventing delays and opaque channels that criminals exploit.
  • Smart contracts can automatically flag suspicious transactions for review.

Example: If a BRICS CBDC transaction is executed from India to Brazil, the blockchain ledger can immediately verify the sender, recipient, and purpose, reducing the likelihood of money laundering or misreporting.

Thus, CBDCs can act as a tool for compliance, transparency, and fraud reduction in international finance while maintaining the efficiency of global payments.

Strong Existing Digital Payment Infrastructure: India’s Unified Payments Interface (UPI) has revolutionized domestic payments, offering instant, reliable, and widespread digital transactions. With such a mature system already in place, a domestic CBDC may add limited incremental value.

Non-interest Bearing Nature: The Digital Rupee is not designed as an investment vehicle, which makes it less attractive to the public compared to conventional bank deposits or even private cryptocurrencies that promise speculative gains.

Strategic Focus on International Payments: The RBI sees greater value in leveraging CBDCs for cross-border transactions, where traditional banking infrastructure is inefficient or restricted due to geopolitical reasons. This allows India to use CBDCs as a strategic tool in international finance rather than competing with an already highly successful domestic system.

Example Scenario: India imports crude oil from Russia. Traditionally, payments must go through SWIFT, which is unavailable due to sanctions.

CBDC Solution: By using a CBDC network linked among BRICS countries, India could directly settle payments digitally, bypassing SWIFT while maintaining legal compliance and transparency.

Benefits Demonstrated:

  • Faster settlement times, reducing reliance on correspondent banks.
  • Transparent transaction trails for regulatory oversight.
  • Potential cost savings by avoiding currency conversion fees and intermediaries.

Such examples highlight the practical utility of CBDCs in ensuring uninterrupted trade and strategic financial autonomy.

Case Study: Suppose India, Russia, and Brazil implement a pilot CBDC payment corridor for trade in energy and commodities.

Implementation:

  • Each country issues a digital currency compatible with a shared blockchain protocol.
  • Transactions are linked to national IDs and tax systems to ensure transparency.
  • Smart contracts automate settlement and compliance checks.

Implications:
  • Economic: Faster, cheaper cross-border payments, reduced reliance on the US dollar.
  • Political: Demonstrates BRICS countries’ ability to cooperate on monetary innovation, potentially reshaping global trade alliances.
  • Regulatory: Sets precedent for transparent, traceable international payments, reducing money laundering risks.

Challenges Noted: Cybersecurity threats, standardization hurdles, and possible backlash from countries dependent on dollar hegemony.

Overall, this case illustrates the transformative potential of CBDCs in international finance while highlighting the need for careful planning and governance.

Attribution

Original content sources and authors

The Hindu
The Hindu
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