Calcutta:
Reserve Bank Deputy Governor T. Rabi Sankar said on Friday that the high cost of remittances for countries, despite available technology, is “unconscionable”, and that India is in discussions with more jurisdictions to make a material impact have on cross-border payments.
Mr Sankar, during a virtual address at the BCC&I Indo-Pacific Economic Conclave, said that according to World Bank research, global cross-border remittances were estimated to reach $830 billion by 2022, and India was the largest recipient.
“According to the World Bank’s global remittance price database, the global average cost of a small amount of remittances (retail size – $200) in the fourth quarter of 2022 was 6.2 percent. For some countries, these costs can be as high as 6.2 percent. 8 percent.
“Such high costs are simply unreasonable in the current context, where data connectivity is so cheap. I believe that the current situation, given the available technology, is not sustainable,” he said.
The top RBI official said India has been making efforts to address the challenge of high cost of remittances and the newly introduced central bank digital currency (CBDC) offers a potential solution in this context.
“If we come up with a technologically feasible solution to link the CBDC systems between countries, it can dramatically reduce the cost of cross-border payments by completely bypassing the old correspondent banking system,” Mr Sankar said.
However, he said this would require international cooperation and agreement on multiple legal and technological protocols, “something that should be entirely possible in today’s hyper-connected global economy,” especially when the welfare gains are substantial.
“We are in discussions with a number of other jurisdictions to make a material impact on the high cost of money transfers,” said Mr Sankar.
In February this year, India and Singapore had enabled the UPI-PayNow link to enable users in both countries to make convenient, secure, instant and cost-effective cross-border transfers using their respective mobile apps.
“We followed up on this in July by, among other things, signing an MoU with the UAE Central Bank (for) cooperation in the field of interconnection of mutual payment and messaging systems,” Mr Sankar added.
The RBI deputy governor also spoke about the risks that private digital currencies pose to countries like India and other emerging economies.
Such currencies hinder emerging countries’ ability to manage their external sector or maintain their policy independence, he said.
“Within the realm of private virtual currencies, the inherent flaws, vulnerabilities, and risks of stablecoins outweigh their purported benefits. In fact, all the perceived benefits of stablecoins may be more easily and responsibly achieved by linking together CBDCs, or high-speed payment systems of tiered currencies. jurisdictions,” Mr. Sankar said.
Meanwhile, at a special session on ‘India Leads – Towards the Third Largest Economy’, Ajay Seth, Secretary, Ministry of Economic Affairs, called for more private investment in the infrastructure sector and ‘creative redevelopment’ of cities.
“This is a sector in particular that attracts very little private capital. Currently, only about 5 percent of infrastructure investments come from private capital. And that’s not sustainable in the sense that it limits the capabilities of governments, and so we need to create opportunities for the private sector to come in.
“Our journey in the future will depend on the magnitude of our success in the ‘Amrit Kaal’. The role of our cities and an orderly transition to urbanization will play an important role,” Seth said.
Prime Minister Narendra Modi has described the next 25 years until the centenary of India’s independence in 2047 as ‘Amrit Kaal’.
Mr Seth said more attention is needed on the energy sector, which is currently “not particularly open to market forces”.
The cost recovery in the sector is not optimal for the healthy functioning of economic forces, he said.
The senior government official also cited reskilling and the efficiency of the financial sector in terms of costs and ease of intermediation as crucial aspects in India’s journey to become the world’s third largest economy.
(Except for the headline, this story has not been edited by DailyExpertNews staff and is published from a syndicated feed.)