India’s New Central Bank Digital Currency
The Reserve Bank of India (RBI) is in process of examining if India needs a new central bank digital currency (CBDC) and is exploring ways to operationalise the digital currency.
- The statement from the RBI has come in the light of gaining popularity of the private digital currencies, virtual currencies and cryptocurrencies.
- These currencies are not operational in India because regulators and governments have always been sceptical about the risks associated with these currencies.
- Thus, RBI is exploring the possibility if there is a need for a digital version of fiat currency.
Central Bank Digital Currency (CBDC)
It is a legal tender and a central bank liability in digital form. The digital currency is denominated in a sovereign currency. It also appears on the balance sheet of the central bank. This is an electronic version of currency which can be converted or exchanged with the similar denominated cash and the traditional central bank deposits.
The Reserve Bank of India in the RBI bulletin of the February cited that central banks have conducted the survey by the Bank for International Settlements. During the survey, it was found that around 80 percent of the 66 responding central banks have started projects to explore the use of CBDC.
Why India did not use cryptocurrencies?
India has always been skeptical of the privately owned cryptocurrencies. The RBI Governor Shaktikanta Das himself did not support the cryptocurrencies. He cited that; the sovereign can be the only issuer of currency in India. Later in December 2019, said that it is early to talk about a central bank-issued digital currency because of the technological handicaps. Further, the central government has also been against the privately issued cryptocurrencies. The government has also introduced the bill in Parliament that seeks to ban the privately held digital currencies completely. However, the bill is lying dormant.
Supreme Court’s stand
Recently, In March 2020, Supreme Court of India also upturned the RBI’s ban on banks dealing with crypto exchanges. Thus, the decision has allowed crypto exchanges to restart their operations India.
It is a digital asset that work as a medium of exchange. In the system, individual coin ownership records are stored in a ledger in the form of computerized database. To secure the transaction, strong cryptography is used. The currency does not exist in the physical form or paper money form. Bitcoin is the first decentralized cryptocurrency that was released in 2009.