Shaktikanta Das, Governor of the Reserve Bank of India (Photo: Shutterstock)
Governor of the Reserve Bank of India (RBI) Shaktikanta Das on Monday said the feasibility of expanding real-time gross settlement (RTGS) systems to settle transactions in major trading currencies, such as the US dollar, euro and sterling, can be explored through bilateral or multilateral agreements .
India is one of the few large economies where there is a 24/7 RTGS. It is an integrated continuous (real-time) payment and settlement system developed by the RBI, through which banks and financial institutions transfer funds (both for customers and inter-bank transactions) to each other immediately, definitively and irrevocably.
India and some other economies have already initiated efforts to expand linkage of cross-border rapid payment systems both bilaterally and multilaterally, the governor said at a conference organized by the RBI in Delhi.
Das also highlighted that remittances are the starting point for many emerging and developing economies, including India, to explore peer-to-peer (P2P) cross-border payments. “We believe there is immense scope to significantly reduce the cost and time of such remittances,” he said.
Additionally, central bank digital currencies (CBDCs) are another area that has the potential to facilitate efficient cross-border payments. India is one of the few countries that has launched both wholesale and retail CBDCs, Das said.
“Programmability, interoperability with the Unified Payments Interface (UPI) retail fast payment system and the development of offline solutions for remote areas and underserved segments of the population are some of the value-added services that we are now experimenting as part of our CBDC pilot. Das said, adding that going forward, harmonization of standards and interoperability would be important for CBDCs for cross-border payments and to overcome serious financial stability issues associated with cryptocurrencies.
Speaking about the emerging risks to financial stability, the Governor highlighted that with the divergence in global monetary policies (monetary easing in some economies, tightening in a few and pause in several other economies) can be expected to lead to volatility in the capital flows. and exchange rates, which can disrupt financial stability. It was evident during the sharp appreciation of the Japanese yen in early August, which caused disruptive changes in the yen carry trade and shook financial markets around the world.
Additionally, private credit markets have expanded rapidly with limited regulation. They pose significant risks to financial stability, particularly because they have not been stress tested in a recession, Das warned.
In addition, he highlighted that higher interest rates, aimed at reducing inflationary pressures, have led to increased debt service costs, volatility in financial markets and risks to asset quality.
“Breaking asset valuations in some jurisdictions could trigger contagion in financial markets, creating further instability. The correction in commercial real estate (CRE) prices in some jurisdictions may put stress on small and medium-sized banks, given their large exposure to this sector. The interconnection between the CRE, non-bank financial institutions (NBFIs) and the banking system in general amplifies these risks,” warned Das.
First published: October 14, 2024 | 11:25 a.m. IS
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