RBI Governor Shaktikanta Das said on January 6, 2023 that the government and the central bank are in discussion with South Asian countries. Cross border trade in Rs.
He also said that the central bank digital currency (CBDC) is in the testing phase and the RBI is moving very carefully and cautiously on the launch of the digital rupee.
“For UPI, we have already done countries have signed In this region, for example, with other countries like Bhutan and Nepal and we are trying to provide UPI facility to make cross border payments very easy in this region…
“The second initiative is that the Reserve Bank of India, along with the Government of India, has taken the initiative for rupee settlement of international trade. We are already in discussion with some of the countries in the region and have set up a framework for cross-border trade in the South Asian region. To facilitate settlement of Rs,” Mr Das said.
In his keynote address at the IMF conference in New Delhi, the governor also said that the RBI has started a pilot project of CBDC.
“It’s in a testing phase, we’re going about it very, very carefully because it’s something where the approach has to be very cautious, very careful. If cloning or anything happens, it’s very Can be risky. .. So this could be another area where there could be room for cooperation (among South Asian countries),” Mr Das said.
The Reserve Bank of India (RBI) launched its retail CBDC pilot project on December 1 last year, following the successful launch of the pilot for the wholesale segment on November 1, 2022.
The RBI had said that the use of the digital rupee is expected to make the inter-bank market more efficient, as settlement in central bank money by reducing the need for settlement guarantee infrastructure or for collateral to reduce settlement risk. Will reduce transaction costs. While launching the pilot.
Shri Das said that with the global trade outlook for 2022-23, greater intra-regional trade in the South Asian region can drive growth and employment opportunities.
“An important dimension to cooperation at the central bank level is learning from each other on common goals and challenges… Rupee settlement of cross-border trade and CBDCs, where the RBI has already started moving forward, are also big There can be areas of cooperation in the future,” Mr. Das said.
The governor outlined six policy priorities facing the South Asian region to address the significant challenges arising from COVID, inflation, financial market strength and the Russia-Ukraine war.
“Multiple external shocks… have exerted sustained price pressures in South Asian economies. For successful deflation, credible monetary policy actions along with targeted supply-side interventions, fiscal, trade policy and administrative measures have become the key instruments,” Mr. Das said.
Mr Das said that while the recent softening in commodity prices and supply-side constraints should help ease inflation going forward, risks to the growth and investment outlook could rise if inflation persists at elevated levels. During the first three quarters of 2022, food price inflation in South Asia averaged over 20 percent.
“Prioritizing price stability may therefore be the optimal policy choice in the current context for the sector,” he said, adding the sector’s heavy reliance on imported fossil fuels makes it vulnerable to imported fuel inflation.
In his address on ‘Current Macroeconomic Challenges and Policy Priorities of South Asia’, Das said that in the current international scenario, the global trade and growth outlook appears bleak, and policies must be driven amid a whirlwind of uncertainty.
According to IMF estimates, South Asia, led by India and Bangladesh, contributes about 15% of global growth.
“In an environment of deteriorating prospects for global growth and business activity, however, the deflationary outlook needs to be mindful of the heightened risks to the growth outlook,” Mr Das said.
Other policy priorities facing South Asian countries will be controlling external debt vulnerabilities, increasing productivity, strengthening cooperation for energy security, cooperation for green economy in the region and promoting tourism.
Mr. Das said that at the central bank level, a key dimension of cooperation in the sector is learning from each other on common goals and challenges, such as infrastructure financing, digital financial inclusion, reducing the cost of cross-border remittances (by adding with the UPI system) and unconventional monetary policy.
The RBI governor further said that any fiscal or monetary expansion has to be calibrated, targeted and cannot be unbridled.
“When we went for rate reduction, policy rate reduction and liquidity expansion, our liquidity expansion was again not unbridled. It was calibrated and targeted with specific end dates in most cases, which are cut-off dates. ..
“Therefore, most of the liquidity expansion we did was targeted, and most of it also had an expiration date… Liquidity is very easy to inject, but very difficult to get out. And we don’t wanted to find themselves in a maze situation,” Mr Das said.