While digital payment systems can lead to better economic integration, they can also cause economic fragmentation if blocs of countries pull away from the international payment system due to geopolitics, she said.
India has seen accelerated adoption of digital payment systems, which have significantly improved transaction costs, accessibility, and transparency for millions in India. But Gita Gopinath, First Deputy Managing Director of the International Monetary Fund (IMF), has said the rising prominence of digital payments also poses a risk to international payment systems.
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Gopinath’s comments came as part of a webinar organised by the IMF titled “At the Frontier: India's Digital Payment System and Beyond”.
Gopinath said IMF was most concerned about the "fragmentation of the international payment system, which would be broken down into smaller blocs based on geopolitical situations".
“Our members are grappling with these developments and are looking for ways to design policies that take into account complex geopolitical and security issues while trying to minimise their economic impact,” said Gopinath.
Gopinath lauded the ability of digital payment systems to become an effective way for global economic integration through effective and effortless cross-border payments. These systems, she felt, can also pave the way for integrating central bank digital currencies (CBDCs) of various nations under one platform and one set of rules.
"If we get it right, these digital platforms can be designed to achieve a good balance between efficiency, security and stability, while avoiding fragmentation," she said.
India's Finance Minister Nirmala Sitharaman recently said that India sees clear advantages in a central bank driven digital currency. "In this day and age, bulk payments happening between countries, large transactions between institutions and large transactions between central banks themselves of each country are all better enabled with digital currency," she said in March.
But the World Bank feels the introduction of CBDC will not just increase central banks' responsibilities but could also “disrupt the existing financial-intermediation structure”.
The webinar was also attended by T Rabi Sankar, Deputy Governor, Reserve Bank of India, Dilip Asbe, the Managing Director & CEO of National Payments Corporation of India (NPCI), and Vijay Shekar Sharma, Founder and Chief Executive Officer at Paytm.
Speaking on the state of digital payments in India, the RBI deputy governor said the volume of digital payments had grown at an average annual rate of 50 percent in India but the Unified Payment Interface had seen a growth of 160 percent in the past five years.
"The number of daily UPI transactions crossed 200 million in April," said Rabi Sankar. Contrasting the UPI with blockchain, Rabi Sankar said that the key to the success of the UPI was its simplicity.
Asbe highlighted key policy support from the RBI and the Indian government in supporting the vibrant digital payment ecosystem in India. Sharma, meanwhile, said that the use of QR codes in conjunction with UPI to process payments without any capital expenditure on the part of merchants at points of sale was critical to achieving the success that UPI has gotten.
Payment companies like PhonePe and Paytm began using QR codes in force after the demonetisation exercise in 2016, which was also further hastened during the COVID-19 pandemic due to restrictions on touching and social distancing.