RBI awaiting government policy directive for digital currency trials: report
02 Sep 2021
The Reserve Bank of India (RBI) is seeking policy action by the government on digital currency, RBI governor Shantikanta Das told the Hindu Business Line in an interview, even as a CNBC report said the central bank may launch its first digital currency trial programs by December.
RBI has conveyed its concerns to the government and the matter is under consideration. So, some policy action from the government is expected to come from the government side, according to edited excerpts of the interview published by the RBI.
Central banks of major economies, including those in China, Europe and the UK are exploring options for issue of digital currencies, either to commercial lenders or to the public directly.
These central bank digital currencies (CBDC), however, would essentially be the online versions of their respective fiat currencies and would be legal tender in digital form. In India’s case, it would be the digital rupee.
CBDCs differ from cryptocurrencies as they would be fully regulated and under a central authority, typically the central banks.
Also, instead of being a tradeable asset with wildly fluctuating prices, central bank digital currencies would function more like their fiat counterparts, and would have widespread acceptance.
“We are being extremely careful about it because it’s completely a new product, not just for RBI, but globally,” CNBC’s Tanvir Gill quoted Das as saying in a pre-recorded interview on Thursday.
The CNBC report said RBI is studying various aspects of a digital currency, including its security, impact on India’s financial sector as well as how it would affect monetary policy and currency in circulation.
Das said the central bank is also exploring the choice between having a centralised ledger for the digital currency or the so-called distributed ledger technology (DLT).
DLT allows multiple participants to access, share and record transactions simultaneously while a centralised ledger means the database is owned and operated by a single entity, the central bank or any other authorised agency.
“I think by the end of the year, we should be able to — we would be in a position, perhaps — to start our first trials,” Das told CNBC.
Central banks across the world have stepped up efforts to rein in cryptocurrencies that have been mushrooming over the past year following a decline in cash usage and growing interest in digital currencies.
The People’s Bank of China has taken a lead with real-world trials being carried out already in place across several cities. The European Central Bank and Bank of England are also looking into a digital euro and a UK CBDC, respectively, according to the CMBC report.
RBI said it had, on 31 May, issued a circular in the form of guidelines to all banks on cryptocurrencies, which the Supreme Court had struck down. The issue is in limbo as banks cannot take action on the basis of a circular already struck down by Supreme Court.
In the now defunct circular, RBI had mentioned that banks are required to follow all the due diligence requirements with regard to KYC and other aspects while opening an account, including accounts for doing crypto business.