It seems that governing bodies in India are walking a thin line, where they want to and don’t want to delve into cryptocurrencies with equal vigor. The Reserve Bank of India has now formed an inter-departmental group to explore the possibility of a rupee-backed digital currency in order to minimize the rising costs of managing paper currency, according to their annual report 2017-18, released on Wednesday.
Indian authorities have been more than a stern over cryptocurrency for a while now, and this new development comes as RBI’s first incline towards the possible use of digital currency in the nation. The report states:
“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 further elaborated their decision
“(Globally) 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”.
According to RTI response to India today, for the financial year 2018, the total cost of printing paper notes in India was Rs 636 crore. The report also cites the emergence of private digital tokens and the rapid evolvement of the payments industry as considerate factors for pondering upon a central bank digital asset.
Stable coins are digital currency backed by an asset such as gold or fiat. Unlike cryptocurrencies like bitcoin or ethereum, their values aren’t volatile. The two popular stable coins, Tether and TrueUSD are pegged against the US dollar. Just recently, the Venezuelan government too introduced Petro, their own digital asset pegged against country’s oil and mineral reserves. Mahesh Makhija, Partner Advisory, Financial Services, EY India, said:
“The idea of a central bank issued digital currency is very promising though issues around digital counterfeiting will need to be addressed.”
So, it seems that RBI doesn’t mind the idea of leveraging distributed ledgers in a payment system, clearing, and settlement processes, its wariness is regarding the privately issued cryptocurrency and its unregulated market. Makhija notes:
“This is a welcome development – version 2.0 of UPI introduces the concept of a ‘Block and Release’ capability that could work well with smart contracts driven on a distributed ledger.”
“There is no established framework for recourse to customer problems/ disputes resolution as payments by cryptocurrencies take place on a peer-to-peer basis without an authorised central agency which regulates such payments. There exists a high possibility of its usage for illicit activities, including tax avoidance.”
“A globally coordinated approach is necessary to prevent abuses and to strictly limit interconnections with regulated financial institutions.”