CBDC corridors: How India can redefine global trade with fintech at the helm

Central Bank Digital Currencies [CBDCs] are here—wholesale and retail, piloted and progressing, awaiting a use case in the wholesale banking space. Unfortunately, their biggest use is being blocked by the very banks that need to popularise them. Especially in the case of global trade settlement, foreign banks hold a dominant position. Central banks need to think beyond the banks and engage with fintechs to reduce the cost of international trade as well as embed CBDC firmly into every global transaction.  

The real promise of CBDCs does not lie in the retail end; what they offer is real-time, peer-to-peer settlement in sovereign money, without the need for layers of intermediaries. This not only reduces the time it takes to complete cross-border payments but also significantly reduces the transaction costs, foreign exchange risk, and compliance complexity that currently ails the global trade transaction system.

Wholesale CBDCs, in particular, hold transformative potential for global trade. Designed for use by regulated financial institutions, they enable the instant clearing and settlement of high-value payments and securities, significantly reducing collateral requirements and unlocking liquidity previously trapped in pre-funding arrangements.