RBI To Introduce Digital Currency To Counter Growing Popularity Of Cryptos: What We Know
The Reserve Bank of India has confirmed that it is working toward a ¡°phased implementation strategy¡± of a Central Bank Digital Currency (CBDC), which will be introduced in the country in a phased manner.
According to RBI Deputy Governor T Rabi Sankar, the central bank will launch its pilot projects in wholesale and retail segments in the near future.
Deputy governor Sankar said developing a domestic CBDC could provide the public with uses that any private virtual currency (VC) offers and to that extent might retain public preference for the rupee.
"It could also protect the public from the abnormal level of volatility some of these VCs experience," he said while participating in an online discussion organised by The Vidhi Centre for Legal Policy.
Introduction of CBDC, he said, has the potential to provide significant benefits such as reduced dependency on cash, higher seigniorage due to lower transaction costs and reduced settlement risk.
"Introduction of CBDC would possibly lead to a more robust, efficient, trusted, regulated and legal tender-based payments option. There are associated risks, no doubt, but they need to be carefully evaluated against the potential benefits," he said.
What is CBDC?
A CBDC is a legal tender issued by a central bank in a digital form. It is the same as a fiat currency and is exchangeable one-to-one with the fiat currency.
The Deputy Governor said it would be the RBI's endeavour, "as we move forward in the direction of India's CBDC", to take the necessary steps which would reiterate the leadership position of the country in payment systems.
He said CBDCs are likely to be in the arsenal of every central bank going forward. Setting this up will require careful calibration and a nuanced approach in implementation.
According to him, some key issues under RBI's examination include, the scope of CBDCs, the underlying technology, the validation mechanism and distribution architecture.
Sankar further said legal changes would be necessary as the current provisions have been made keeping in mind currency in a physical form under the Reserve Bank of India Act.
He also highlighted some the risks associated with digital currencies, like sudden flight of money from a bank under stress.
"There are associated risks...but they need to be carefully evaluated against the potential benefits," he added.
Planning since 2017
The finance ministry, in 2017, had set up a high level inter-ministerial committee to examine the policy and legal framework for regulation of virtual / crypto currencies. It had recommended the introduction of CBDCs as a digital form of fiat money in India.
Last week the Delhi High Court had asked the Centre and Sebi to respond to a plea seeking to direct the markets regulator to issue guidelines and take steps against crypto-asset exchanges advertising on television without standardised disclaimers.
A bench of Chief Justice D N Patel and Justice Jyoti Singh issued notice to the Ministry of Information and Broadcasting, Security Exchange Board of India (Sebi) and three crypto-exchanges operating in India and giving advertisements to draw retail investors to trade in crypto currencies.
