EP965: The Digital Rupee & Beyond: Reimagining Money in a Tokenised Economy

Edul Patel, CEO & Co-founder, Mudrex

As central banks globally explore digital currencies, India’s Digital Rupee pilot marks a significant step toward rethinking monetary infrastructure. Beyond faster payments, CBDCs have the potential to reshape settlement systems, enable programmability, and unlock new fintech innovation.

In this episode, Vriti Gothi speaks with Edul Patel, CEO & Co-founder of Mudrex, to explore the role of CBDCs in addressing inefficiencies in the financial system, their impact on banks and payment ecosystems, and the emerging opportunities for fintechs. They also discuss the balance between privacy and control, the coexistence of CBDCs and cryptocurrencies, and what it will take for India’s Digital Rupee to scale meaningfully in the years ahead.

Transcript

SPEAKER_01 0:00

I'm Vrithi Gautier of IBS Intelligence and you're listening to the IBS I News podcast. With me is Adun Patel, CEO and co-founder of Mood Reds. India is actively piloting the digital rupee. From a financial system perspective, what core gaps in payments or monetary infrastructure is the RBI trying to address through a CBDC?

SPEAKER_00 0:19

Viti, so firstly, thanks a lot for having me on the podcast today. We are all familiar, I think India is far ahead as compared to most of the world in terms of digital payment infrastructure or what we call as GPI. And cornerstone of the DPI infrastructure is UPI, our Unified Payments Interface. UPI has definitely put India out there on the world map in terms of payments infrastructure. And a lot of times people ask this question okay, if UPI already exists, what's the purpose of CBDC or the e-Rupee? Right? I think the way to think of it is that UPI is at our current digital payment infrastructure is at the lower end of the stack or the last mile, which is delivery of payments. The job of UPI is just to make sure that money moves from one bank account to another. The job of CBDC, however, a central bank digital currency, is more complicated than that. You should think of it as a settlement layer and not a payments layer. Effectively, a layer that decides if monies are supposed to go from one bank account to another or not based on certain conditions. The intent over there is to reduce leakages, reduce loss, make sure that the transfers are being used for the correct purpose. That's one example. In the future, more complicated examples such as asset settlement, asset tokenization, all of these can emerge via the broad infrastructure that CBDC offers. And today we are talking about CBDC from the perspective of not only retail payments, but also financial institutional payments and settlements. A lot of financial institutions still move monies across them on archaic rails and archaic infrastructure. And CBDC wholesale pilot is very actively running today, where banks are using for interbank settlements not only for currency, but also for other more complicated assets such as bonds, etc., etc. as well. So that's how you should think of CBDC. It's a layer that's an independent parallel layer to UPI. Just like how UPI is making sure that payments are happening, CBDCs are making sure that the correct payments are happening in the correct place. And it can over time emerge as a very large complement to our current payments infrastructure.

SPEAKER_01 2:51

What do you think are the biggest best opportunities for a fintech firm with this emerging CBDC thing? It can be in compliance or embedded finance, or what are the new trends that are going on?

SPEAKER_00 3:05

So I think Vritti, it is still fairly early for someone to come up with a bunch of core real use cases on CBDC because the infrastructure is still very early and access to it is very limited. So right now, the early use cases that people are seeing is in the format of money transfer from one account to another. It is primarily being used as another alternative of a PTM wallet or a MoviQuick wallet, like a PPI wallet product. Over time, it should move from that to more conditional transactions and conditional transfers. And we will see very normal use cases, especially around asset tokenization, also emerge in the CBDC landscape. Those things will take time and will take a demonetization equivalent event to happen and bring popularity of this asset or and this technology to the broader payments infrastructure that's available to us. So that's what I believe is currently stopping. It is still fairly early. Having said that, uh FinTech companies should keep an eye open on all the advances that are happening and await a broader opening up of the market.

SPEAKER_01 4:14

So privacy and programmability are the core or the central parts of CBDC design. From your perspective, how should regulators and banks strike the right balance between the user trust, compliance, and control?

SPEAKER_00 4:28

The interesting part about it is, Vriti, all the three things that you have mentioned are non-negotiable. User trust, compliance, and control, all these three are non-negotiable, and which is what makes executing uh CBDC infrastructure much harder to do than normal. Uh, this is not a challenge that's unique to central bank digital currencies. This is also a challenge that's also there in typically uh other public, other private blockchains like Ethereum, Bitcoin, Tron, Solana, etc., etc., etc. as well. What we also know is that these challenges are not unique to India. Uh, other countries that are piloting C B D Cs are also seeing these challenges. And that's why it's it's not only uh, as you write this, it's not only just a payment and settlement technology problem to solve, but it's also an adoption problem to solve and an understanding problem, and which why it will slowly steadily take time. And early on, maybe the way it works is that trusted intermediaries use this more so with the format of banks and financial institutions, and over time it gets purpose-built for last mile detail.

SPEAKER_01 5:31

So, do you think uh CBDCs and cryptocurrencies are against each other in this battle, or are they coexistent? Like they both can exist at the same time.

SPEAKER_00 5:43

I think actually both of them will coexist, in my opinion. Uh, just to give you some sense, C BTC transactions in India have gone from roughly 250 crore to a thousand crore. Um, and global stablecoin holdings have gone, and this is just over the last year, whereas the global stablecoin holdings have gone from 80-90 billion to close to 300 billion now. So stable coins are rapidly growing, they solve for a very different purpose. CBTC is rapidly growing, it's also a very different purpose. CBTCs and stable coins both can be used for money movement, value transfer, but what specific use cases they get used for will be very different. So, naturally, if there is a global product that's being built that touches multiple countries, multiple geos, requires monies to be moved across multiple jurisdictions, especially around cross-border payments, uh stable coins and cryptocurrencies can be very beneficial. Uh, CBDCs might be really useful for within the country settlement, making sure that the government subsidies are delivered correctly and organizing infrastructure within a country. And that's where I think both of these can exist very complementarily with each other.

SPEAKER_01 6:53

Currently, there is a lot of buzz about stablecoin payments in the global market. What does a stable coin payment mean and how can one do it?

SPEAKER_00 7:04

Correct. So just to uh inform your users, stable coins are virtual digital assets that are backed by real fiat currencies. The most popular stable coins are dollar-backed stable coins like USDT and USDC, which are backed by real dollars in a bank account. And you can think of it as a more advanced version of again a PPI wallet where there is actual dollars, and your holding of those tokens represents your holding of the actual dollars in a bank account somewhere. Now, there are three use cases of stable coins. Uh, because they hold actual dollars, they can be used for within country money movement, they can be used for inter-country money movement, and they can be used for a store of value. Now, in the context of India, within country money movement, we really don't need stable coins, they are a worse-off instrument than UPI. UPI is just far superior to it. Uh, we also don't need them from an asset holding perspective. We are A, a capital-controlled country, B, our currency actually is pretty strong, broadly speaking. And see, Indians have a wide variety of assets where they can park their funds for returns. So, for asset holding, also, it's not really the correct instrument. Having said that, for cross-border money movement, it's an extremely efficient instrument. Today, most of the cross-border money is moved using something called as a SWIFT network, which is a network of correspondent banks, which means that typically, if you want to send money from one country to another, it can take three to five days, can charge 3 to 5%, and it is a huge cost. A country like India is India by far is one of the largest remittance receiving countries in the world. We are also one of the key large import-export countries in the world. Overall, we process close to$2 trillion in imports, exports, remittances in a given year. And just the fees that our importers, exporters, NRIs pay to send and receive monies in India accumulates to about$50 billion a year. It's ridiculous the amount of fees we pay just to move monies, just for access of our goods. And the time it takes for the access of our goods. So stable coins are excellent products to help reduce that time and reduce that cost, helping move monies across countries in minutes rather than days and cost a few cents rather than uh the multiple percentages that it does today. And this is not only true for India, but it's true for most countries in the world. And that's where the adoption is being seen. So, for example, US-Mexico corridor, where Mexico is the second largest or third largest receiver of repentance in the world, that is being activated via stable coins. The same is true for the Philippines corridor, the same is true for a lot of other Latin American countries, the same is true for Africa, Europe corridors. So we are seeing stable coins now slowly but surely replace traditional rates simply because they are a faster, cheaper, more secure instrument for money transfer.

SPEAKER_01 10:07

Since there might be a change in how cross-border payments take place, how do you see Indian banks and FinTechs adopt?

SPEAKER_00 10:16

Correct. So I think adoption of it is growing slowly and steadily. Uh, we are one of the largest stablecoin-based payments and remittance companies in the world. Uh, we do work in multiple different GOs, including India. And I think the opportunity is massive here. And payment companies and banks and Indian fintechs should definitely try and address the market demand that's available. They can start working with partners like us, they can start working with global players, they can start informing and working with individual clients on these fronts. I mean, Satta, the biggest bottleneck for growth of something like this, Vritti, is clarity of regulation and adoption of those regulations. Today we operate under virtual digital assets and we work according to the virtual digital asset PMLA regulations and not under remittance regulations. That and we are actively trying to work out and see if that part can be changed and improved. Uh, that's what the approach is around.

SPEAKER_01 11:14

How do you see the animation change over the next five years in India?

SPEAKER_00 11:20

So, Vritti, I I think it's unfair to say a favor of cryptocurrency stable coins, because in reality, it's a technology infrastructure change and it is in the favor of the consumer. So, adoption of it is in the favor of the consumer, and I am fairly confident that our regulators are always thinking of the consumer first. It is important to also recognize that changes in regulation take time because the job of the regulator is difficult. They not only have to look at all the pros, but also look at risks involved in terms of settlement, in terms of transactions, in terms of validity. Plus, there is an archaic old infrastructure. How does that infrastructure merge very well with the new infrastructure? Is an important piece as well. So these things are things that take time, and we can clearly see our regulators work hard at it. In fact, India has pushed for consistency of regulations across the world for cryptocurrency as well as stable coins, and we will see that continue over the course of this year. As you understand, most in things like this, it's almost impossible to predict a timeline. What I do foresee is as other countries around the world start adopting it much faster, there is natural pressure on India to start adopting it much faster. And then once agreed and approved, the adoption at the infrastructure level can be very, very fast. So I expect that over the next couple of years or so, there will be some format of clarity that will emerge on how CBDCs, stablecoins, and so on and so forth can be used for cross-border payments. And as that regulatory clarity emerges, companies that will start using that infrastructure for payments and payouts will start almost immediately. And then within a few years, it should all I can't, I don't see a reason why a large volume of payments will already not be moving via this rail simply because it's faster and cheaper.

SPEAKER_01 13:14

Thank you for coming to the podcast, Idul. Idul Patin, CEO and co founder of Mutrix.