Despite its outright ban on all cryptocurrencies, the Reserve Bank of India (RBI) released a statement saying that it is considering the launch of ‘central bank digital currency’ in order to keep up with the changes of the payments industry. According to the RBI, the ban on cryptocurrencies was implemented mainly because they threaten the financial stability of the country. However, it noted that technological innovations are essential to improve transparency in the financial system.
Following its monetary policy review on April 5, 2018, the RBI released a statement on developmental and regulatory policies. The statement included a section on central bank digital currency, which is being explored with the help of an inter-departmental group. The group will study the desirability and feasibility of the implementation of the digital currency in India.
The statement noted that technological changes in the payment system have led central banks across the world to consider the use of fiat digital currencies. Though many central banks are still debating on this, RBI has swung into action with the implementation of the inter-departmental group.
RBI also noted that the introduction of digital currency will bring down the costs of printing paper and metallic currency, which is a huge liability for the government at present. The group will conduct its study on central bank digital currency and provide its final report to RBI in June 2018.
Though RBI has banned all forms of cryptocurrencies in India, it is supportive of the blockchain technology which is considered to be backbone of all cryptocurrencies in the market. The distributed ledger system of blockchain technology has the potential to change the financial landscape and enable central banks to come up with their own version of digital currencies.
Cryptocurrency mania hit the markets last year with industry leader bitcoin touching as much as $20,000 in value. Regulatory concerns have remained the main problem for cryptocurrencies since governments consider this to be a channel for money laundering and tax evasion. With the adoption of blockchain technology by governments, the payment landscape for legal tender might change in the future.
“The Reserve Bank of India (RBI) and the Ministry of Finance has frequently cautioned the users, holders, and traders of virtual currencies regarding the potential economic, financial, operational, legal, customer protection and security related risks associated in dealing with virtual currencies. RBI also further clarified that it has not given any licence/authorisation to any entity/company to operate schemes or deals related to Bitcoin or any virtual currency. RBI has also barred its regulated entities from dealing or providing services to any individual or business entities dealing with cryptocurrency. The Ministry of Finance has also officially stated that virtual currencies are not legal tender or coin.
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