CBDCs Will Significantly Improve Supply Chain Finance: KredX To Take A Lead On CBDC For Cross-Border Settlements

CXOToday has engaged in an exclusive interview with Mr. Devang Mundhra, Chief Technology and Product Officer at KredX


  1. How CBDC (central bank digital currency) will empower and ease cross-border payment and transaction solutions

The implementation of central bank digital currencies (CBDC) for cross-border remittances is expected to have multiple advantages that can facilitate and streamline cross-border payment and transaction solutions. CBDC transactions can be executed almost instantaneously, which can significantly enhance the speed and efficiency of cross-border payments, thereby simplifying international trade for businesses. In addition, the cost of processing CBDC transactions is expected to be lower than traditional cross-border payment methods such as wire transfers, which often require several intermediaries and high transaction fees. By decreasing the costs associated with cross-border transactions, CBDC can make international trade more affordable for businesses of all sizes and promote financial inclusion by providing a digital payment option for individuals and businesses who lack access to traditional banking services.

CBDCs offer numerous advantages over traditional forms of digital currency, making them an attractive solution for companies like KredX that engage in export financing. CBDC transactions are recorded on a distributed ledger, which can increase the transparency and traceability of transactions, minimizing the risk of fraud and money laundering in cross-border transactions. These transactions are also encrypted and safeguarded by advanced security protocols, which can enhance security and mitigate the risk of cyber-attacks and fraud in cross-border transactions.


  1. Challenges associated with cross-border payments today and how CBDC in India can power the next generation of innovation in cross-border payments?

Cross-border payments can sometimes be slow and complex, with a few challenges associated with the current system. Two key challenges associated are slow settlement time and compliance and regulatory issues. Cross-border payments can take several days to settle due to the involvement of multiple intermediaries and complex processes. This can cause delays and affect cash flow for businesses. Moreover, these payments are subject to a range of compliance and regulatory requirements, including anti-money laundering (AML) and know-your-customer (KYC) regulations. Compliance with these requirements can be challenging, particularly for small businesses and individuals.

The key to mitigating these challenges is to create innovative payment systems that are faster, cheaper, and more transparent. Additionally leveraging new technologies such as biometric authentication and digital identity systems can be used to verify the identity of parties involved in cross-border payments. This can help to reduce the risk of fraud and increase compliance with AML and KYC regulations. This entire system requires collaboration and coordination among central banks, financial institutions, and technology companies, as well as careful consideration of regulatory and compliance issues.


  1. How will CBDC allow innovation not just in payments but across several areas of financial markets?

CBDCs offer the potential to spark innovation across a broad range of financial markets beyond just payments. By including programmable features, it can enable complex financial contracts and transactions, paving the way for innovation in trade finance, supply chain management, and insurance. Additionally, CBDCs can integrate with decentralized finance platforms, allowing users access to a wide range of financial products and services without intermediaries, driving innovation in areas such as peer-to-peer lending, automated market-making, and prediction markets. CBDCs can also be designed to be interoperable with other digital currencies, promoting cross-border transactions and stimulating innovation in remittances and international trade.

Data privacy and security are also areas in which CBDCs can spark significant innovation. It can include robust data privacy and security features, enhancing protection for users’ personal and financial data. This can drive innovation in digital identity and financial inclusion. Finally, CBDCs can provide central banks with greater direct control over monetary policy and improve financial stability by decreasing the risk of bank runs and other systemic risks. However, realizing the full potential of CBDCs will necessitate careful consideration of regulatory, technical, and operational issues, as well as collaboration and coordination among central banks, financial institutions, and technology companies.


  1. How does CBDC help consumers make easier and safer transactions?

CBDCs can offer consumers a convenient and secure way to make digital payments, similar to traditional currencies. By using a digital wallet on their smartphones, consumers can easily store and transfer CBDCs, eliminating the need for physical cash or cards. Instant payments can be made, which is particularly useful for time-sensitive transactions, without requiring intermediaries such as banks or payment processors. Furthermore, it incorporates robust security features, such as encryption and digital signatures, to prevent fraud and ensure transaction integrity. It also offers the potential for secure digital identity verification, reducing the risk of identity theft and other types of fraud.

CBDC can also promote greater financial inclusion by enabling individuals who lack access to traditional banking services to participate in digital payments. They can facilitate cross-border payments, lower transaction costs, and reduce the need for intermediaries. These advantages can benefit both consumers and merchants.


  1. How does CBDC help in managing supply chain finance better?

CBDCs have the potential to significantly improve supply chain finance for companies like KredX by providing a secure and efficient means of transferring funds between different parties in the supply chain. It can facilitate real-time payments, which can help to reduce the time it takes for suppliers to receive payment for goods and services. This can help to improve cash flow and liquidity for suppliers, which can be especially beneficial for small and medium-sized enterprises (SMEs). It can also provide greater transparency in supply chain finance by enabling parties to track transactions and verify the authenticity of invoices and other financial documents. This can help to reduce the risk of fraud and improve the accuracy of financial reporting.

Lower transaction costs is another offering when compared to traditional payment methods, which can benefit both buyers and suppliers. This can help to reduce the cost of financing for suppliers and enable buyers to negotiate better terms and prices. Moreover, CBDCs can be designed to include programmable features, such as smart contracts, which can automate the settlement of payments and other financial transactions. This can help to reduce the administrative burden and improve the efficiency of supply chain finance. Lastly, it can be designed to be interoperable with other digital currencies, which can facilitate cross-border payments and enable greater international trade. This can help to improve the efficiency of supply chain finance by reducing the time and cost of international transactions.

The supply chain finance industry has high hopes for CBDCs. Moreover, KredX, India’s largest supply chain finance company, will likely take a lead on it when CBDC does become available for cross-border settlements. CBDCs are especially appealing to the industry due to their potential to greatly enhance the efficiency and affordability of cross-border payments, which are a crucial aspect of supply chain finance.

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