CBDC-to-CBDC Payments

CBDC-to-CBDC payments refer to transactions in which a Central Bank Digital Currency (CBDC) is transferred directly between two CBDC systems or wallets, either within a single jurisdiction or across different countries. These payments represent an advanced stage in the evolution of digital money, where sovereign digital currencies interact seamlessly to facilitate secure, efficient, and final settlement. In the Indian context, CBDC-to-CBDC payments are significant for strengthening payment efficiency, enhancing cross-border settlement mechanisms, and reinforcing monetary sovereignty in an increasingly interconnected global financial system.

Concept and Meaning of CBDC-to-CBDC Payments

CBDC-to-CBDC payments involve the direct exchange of value from one CBDC unit to another without conversion into commercial bank money or reliance on traditional correspondent banking channels. Such payments can be:

• Domestic CBDC-to-CBDC payments, occurring within the same national CBDC framework
• Cross-border CBDC-to-CBDC payments, involving interoperability between different countries’ CBDC systems

The defining feature of these payments is settlement in central bank money with immediate finality, reducing counterparty risk and settlement delays.

Policy and Regulatory Context in India

The development of CBDC-to-CBDC payment frameworks in India is guided by the Reserve Bank of India, which is responsible for issuing and regulating the digital rupee. The central bank views CBDC-to-CBDC payments as a strategic innovation capable of addressing inefficiencies in both domestic and international payment systems.
From a policy perspective, these payments align with objectives such as:

• Enhancing payment system resilience
• Reducing dependence on intermediary-heavy settlement models
• Supporting secure and transparent cross-border transactions

India’s cautious, pilot-based approach reflects the need to balance innovation with financial stability.

Operational Framework of CBDC-to-CBDC Payments

In a CBDC-to-CBDC payment, the payer initiates a transaction using a CBDC wallet. The digital currency is transferred through a secure settlement layer directly to the recipient’s CBDC wallet or central bank system. In domestic contexts, this occurs within a single CBDC ledger or interoperable ledgers maintained under central bank oversight.
In cross-border scenarios, CBDC-to-CBDC payments may involve:

• Interlinked national CBDC platforms
• Shared settlement infrastructures
• Pre-agreed exchange and compliance protocols

These mechanisms eliminate multiple layers of correspondent banks, enabling faster and more transparent settlements.

Role in the Banking and Financial System

CBDC-to-CBDC payments have important implications for the banking system. While central banks issue and settle CBDCs, commercial banks continue to play a key role as intermediaries providing wallets, compliance checks, and customer interfaces. This preserves the two-tier banking structure while modernising settlement processes.
For financial institutions, such payments can:

• Reduce settlement and liquidity risks
• Lower operational and transaction costs
• Improve efficiency in high-value and time-sensitive transfers

This strengthens the overall robustness of the financial system.

Significance for Cross-Border Payments and Trade

One of the most impactful usage areas of CBDC-to-CBDC payments is cross-border transactions. Traditional international payments are often slow, expensive, and opaque due to reliance on correspondent banking networks. CBDC-to-CBDC payments can enable near-instant settlement with lower costs and greater transparency.
For India, a major participant in global trade and a leading recipient of remittances, this innovation can:

• Improve efficiency of international remittances
• Support smoother trade settlements
• Reduce foreign exchange settlement risks

These benefits have direct implications for external sector stability and competitiveness.

Impact on Monetary Policy and Sovereignty

CBDC-to-CBDC payments reinforce monetary sovereignty by ensuring that digital transactions continue to be settled in sovereign central bank money rather than private digital instruments. From a monetary policy perspective, real-time settlement data can enhance oversight of liquidity flows and improve policy transmission.
At the same time, careful design is required to prevent excessive currency substitution or unintended capital flow volatility, particularly in cross-border contexts.

Advantages of CBDC-to-CBDC Payments

CBDC-to-CBDC payments offer several advantages within banking and finance:

• Instant Settlement: Payments are completed with finality in real time.
• Reduced Intermediation: Fewer intermediaries lower costs and risks.
• Transparency: Improved traceability within regulatory frameworks.
• Systemic Stability: Settlement in central bank money reduces counterparty risk.

These features make CBDC-to-CBDC payments a robust alternative to conventional settlement systems.

Challenges and Risks

Despite their potential, CBDC-to-CBDC payments face notable challenges. Interoperability between different national CBDC systems requires common technical standards, legal harmonisation, and coordinated regulatory oversight. Cybersecurity, data privacy, and operational resilience are critical concerns.
There are also macroeconomic risks, including rapid cross-border capital movements and potential impacts on exchange rate dynamics. These risks underline the importance of phased implementation and international cooperation.