UPI-PayNow linkage at an advanced stage: RBI Dy Guv

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

“We would be looking to put in such arrangements regionally or with other countries as we go forward,” he said at an ICRIER webinar.

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

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

When implemented, fund transfers can be made from India to Singapore using mobile phone numbers, and from Singapore to India using UPI virtual payment addresses (VPA).

Sankar observed that when the PayNow-UPI linkage happens, the settlement would largely be in bilateral currencies.

UPI-PayNow settlement

As both UPI and PayNow settlement will happen in central bank books, the eventual settlement will have to be some convertible currency.

“Now whether it is euro or dollar or these two countries decide that we need each others currency in any case and maintain that…,” he said.

If, for example, there is lot of demand for Indian currency in Singapore and vice-versa, there may not be any need to convert into a third currency and settle these transactions, the Deputy Governor explained.

“But, in all likelihood, it will go through a convertible currency at least in the initial stages for eventual settlement. Although that wouldn’t really affect the transaction itself that you do.

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

Stablecoins

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

A Stablecoin is a cryptocurrency pegged to a reserve asset like a fiat currency or a commodity.

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

Stablecoins take care of the volatility involved in cryptocurrencies.

Because Stablecoins are backed by a set of assets, which are typical financial assets and are therefore far more stable than cryptocoins or linked to another fiat currency, they can effectively do the function of the currency or the portfolio they are linked to.

“Now, assuming they are linked to the US dollar, any Stablecoin will effectively work as the dollar, irrespective of whether it is privately issued stable currency or otherwise.

“From the point of view of dollarisation, Stablecoins are something we need to deal with far more seriously than cryptocurrencies,” the Deputy Governor said.

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