Since 2017, the RBI’s crypto news has been filled with stories on regulation and banning the use of cryptocurrency. The uncertainty about the future of crypto in India is set to end with enacting the Cryptocurrency and Regulation of Official Digital Currency Bill of 2021. The bill will create clear regulations on the utilization of blockchain technology and establish the legality of private cryptocurrencies.
RBI Crypto News: Defining a CBDC – Central Bank Digital Currency
Amid all the RBI crypto news, the recurring question remains about a digital currency whose issuer is a central authority. One of the key appeals of cryptocurrencies is the absence of regulators who slow down the transaction speeds and increase costs.
Currently, 9 countries have launched CBDC’s and 87 others are exploring the option. A CBDC is the digital representation of the issuing country’s fiat currency. The government avoids printing and minting physical currency and issues digital coins in its place.
Unlike conventional cryptocurrencies that require multiple devices globally to verify transactions’ accuracy, CBDCs rely on a central hub to process payments. The IMF has listed some reasons why digital currencies may appeal to governments.
- Cost Efficiency: Low transaction costs.
- Inclusivity: The unbanked can access money easily on their phones.
The Journey So Far
When the SC Garg Committee issued its 2019 report, one of its recommendations was custodial sentences of up to 10 years for individuals dealing with crypto. The committee also laid the foundation for the RBI’s CBDC by suggesting a government-backed option.
Since then, the RBI has explored its options, and in February 2021, it released a report where it acknowledged that a CBDC would improve financial inclusion. However, the state agency also pointed out that the banking sector stands to lose its intermediary role if a digital currency is issued.
The Irony of a State-Issued Cryptocurrency
To many, the appeal of cryptocurrencies is their decentralized nature. The new crypto coins launched by RBI 2021 are digital currencies regulated by states. That means that the coin will have government backing, and the sovereign will enjoy the accrued profit.
The cryptocurrency RBI relationship is set to change following the bill’s enactment. The stability of the proposed CBDC will differ significantly from traditional cryptocurrencies. Due to the presence of a central issuer, trading activities will be based on the health of the RBI and not speculations on prices.
The SC Garg Committee report on digital currencies in 2019 raised concerns regarding the decentralized nature of the crypto industry. The absence of a sovereign authority denies cryptocurrency an underlying intrinsic value. This was the basis for the recommendation to prohibit all cryptocurrencies in India.
What Lies Ahead for the Crypto Industry?
So far, the introduction of RBI’s digital currency seems to have been separated from the regulation bill due to consensus issues. The government is having issues with gaining consensus due to the crypto industry’s complex matters.
The RBI is set to launch its CBDC as a pilot program and offer technical input to legislative efforts. This means that the banning of cryptocurrency is unlikely to happen any time soon. The digital currency offers the RBI an opportunity to understand the blockchain industry and offer more informed views to the government.
The unprecedented nature of decentralized currency means that many laws will have to be amended to clear the path for the regulatory framework. All indications are that it is a time-consuming effort with plenty of moving parts that will present a challenge when bringing them all together.
Key Takeaways
It is only a matter of time before introducing a CBDC in India. This will follow the path of 9 other countries that have fully implemented their digital currencies. Potential gains to be made include improving financial inclusion and reducing transaction costs.
The banning of cryptocurrencies in India remains a challenge given the lack of consensus to introduce the legislation required to regulate the industry. With the pilot program, the RBI will have plenty of insight into the world of digital currencies.
