India is actively expanding its Free Trade Agreements (FTAs) with key global economies, including the UAE, Australia, Japan, South Korea, the European Union, and the UK. While these agreements aim to enhance bilateral trade volumes, realising their full potential hinges critically on integrating Central Bank Digital Currency (CBDC) corridors. To maximise trade efficiency, India’s FTAs should explicitly include a condition that mandates transitioning trade settlements to CBDC channels, with fintech companies ideally managing these transitions to ensure swift, scalable, and cost-effective implementation.

One of the most significant barriers currently affecting international trade efficiency is the high conversion cost incurred when transactions involve multiple currencies. Typically, multi-currency trade—for instance, converting the Indian Rupee to the US Dollar and subsequently to the UAE Dirham—incurs costs ranging from 3.7 per cent to 8 per cent of the transaction value. These costs result from multiple foreign exchange spreads, intermediary correspondent bank charges, and regulatory margins. CBDC-enabled corridors, allowing direct settlements between central banks in digital currencies, eliminate these intermediary costs, drastically reducing conversion expenses to approximately 0.1-0.2 per cent. This reduction equates to........

© News18