Author: Jagdish, Kumar, India

In order to cut down cost on physical cash bills, India’s central bank, Reserve Bank of India (RBI) is mulling to introduce a rupee-backed central bank digital currency (CBDC) into its monetary policy, cautioning the increasing usage of crypto trade through peer-to-peer mode.

The bank in its annual report said that this move will cut cost on print notes by $90 million and is also studying the desirability and feasibility to introduce a central bank digital currency.

During 2018, RBI spend over $90 million on printing notes, which can be cut, if the bank opts for Blockchain powered payment gateway.

However, the bank also underlined that currently after the ban on crypto trade was introduced more trade are happening on a peer-to-peer basis without an authorized central agency which regulates such payments.

There is no established framework for recourse to customer problems/disputes resolution as payments and there exists a high possibility of its usage for illicit activities, including tax avoidance, the report added.

Though the government if pitching its full force on digital money or online transaction, it is still far away getting desired results, as the eco system it still needs to be developed.

It is believed that the digital currency RBI is working will be Blockchain based distributed ledger technology (DLT) as it holds the promise of significant economic benefits in future in payment and settlement solutions.

Rapid changes in the landscape of the payments industry, along with factors such as emergence of private digital tokens and the rising costs of managing fiat paper/metallic money, have led central banks around the world to explore the option of introducing fiat digital currencies. In India, an inter-departmental group has been constituted by the Reserve Bank to study and provide guidance on the desirability and feasibility to introduce a central bank digital currency, the report revealed.

The report flagging some concerns from the cryptocurrencies under ‘ Cryptocurrency: Evolving Challenges’ reported that, “The cryptocurrency eco-system may affect the existing payment and settlement system which could, in turn, influence the transmission of monetary policy.

Furthermore, being stored in digital/electronic media – electronic wallets – it is prone to hacking and operational risk, a few instances of which have already been observed globally, the report underlined.

The absence of information on counter parties in such peer-to-peer anonymous/pseudonymous systems could subject users to unintentional breaches of anti-money laundering laws (AML) as well as laws for combating the financing of terrorism (CFT) (Committee on Payments and Market Infrastructures – CPMI, 2015).

RBI also said that Asian countries have experienced oversized concentration of crypto players – Japan and South Korea account for the biggest shares of crypto asset markets in the world.

In the case of Bitcoins, half of transactions worldwide are carried out in Japan. In September 2017, Japan approved transactions by its exchanges in cryptocurrencies. China’s exchanges hosted a disproportionately large volumes of global Bitcoin trading until their ban recently.

In the United States, the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) have emerged as the primary regulators of cryptocurrencies, where these assets like most other jurisdictions, do not enjoy the legal tender status.


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