Reserve Bank of India Deputy Governor T Rabi Sankar says work to link Singapore’s PayNow real-time payment systems and India’s Unified Payments Interface (UPI) is at an advanced stage .

“We would seek to put in place such agreements at the regional level or with other countries as we move forward,” he said during an ICRIER webinar.

The PayNow-UPI link will allow users to make instant, low-cost money transfers directly from one bank account to another between Singapore and India.

In September 2021, the Monetary Authority of Singapore and RBI had announced their intention to link PayNow and UPI by July 2022.

Once implemented, remittances can be made from India to Singapore using mobile phone numbers, and from Singapore to India using UPI Virtual Payment Addresses (VPAs) .

Sankar observed that when the PayNow-UPI link occurs, settlement will largely be in bilateral currencies.

UPI-PayNow settlement

As UPI and PayNow settlement will occur on the books of the central bank, eventual settlement will need to be a convertible currency.

“Now whether it’s the euro or the dollar or these two countries decide that we need each other’s currency anyway and maintain that…” he said.

If, for example, there is a high demand for Indian currency in Singapore and vice versa, there may not be a need to convert to a third currency and settle those transactions, the Deputy Governor explained.

“But in all likelihood it will go through a convertible currency at least in the early stages of eventual settlement. Although that doesn’t really affect the transaction itself that you are making.

“But at this stage, any cross-border transaction would involve a conversion from one currency to another,” Sankar said.

Stable Coins

The Deputy Governor observed that stablecoins are a much bigger threat in terms of dollarization than a cryptocurrency.

A stablecoin is a cryptocurrency tied to a reserve asset like fiat currency or a commodity.

“Now cryptocurrencies are so volatile, whatever their uses, it is unlikely that they can be used for small value or any transaction,” Sankar said.

Stablecoins support the volatility involved in cryptocurrencies.

Because stablecoins are backed by a set of assets, which are typical financial assets and are therefore much more stable than cryptocoins or tied to other fiat currency, they can effectively perform the function of the currency or wallet to which they are linked.

“Now, assuming they are pegged to the US dollar, any stablecoin will effectively function like the dollar, whether it is a privately issued stablecoin or not.

“From a dollarization perspective, stablecoins are something that we need to treat much more seriously than cryptocurrencies,” the deputy governor said.

Published on

07 April 2022

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