Indian Central Bank Mulls Out Option of Central Bank Digital Currency to Cut Down on Bank Note Bill
On Wednesday, august 29, India’s central bank - The Reserve Bank of India (RBI) - published its annual report 2017-2018 wherein it mentions of forming an inter-departmental group to explore the demand and possibility of having a state-owned central bank digital currency.
The central bank said: “[A]n 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 (CBDC).”
The Central Bank Digital Currency is expected to be tethered to the Indian Rupee. The country’s monetary regulatory body explains the reason to opt for a CBDC saying that “rapid changes” in the global financial and payments industry has resulted into “emergence of private digital tokens and the rising costs of managing fiat paper/metallic money”.
A report from the Economic Times notes that the cost of printing paper notes has went to $90 million, according to the RBI. However, the RBI has not explicitly stated whether the upcoming CBDC would be based on the blockchain technology, but it did mention that the use of Distributed Ledger Technology (DLT) "holds the promise of significant economic benefits in future.”
In this report, the RBI also touched down on the point of crypto-trading and its ban on bank accounts linked to exchanges, earlier this year in April 2018. The RBI wrote: "Developments on this front need to be monitored as some trading may shift from exchanges to peer-to-peer mode, which may also involve increased usage of cash. Possibilities of migration of crypto exchange houses to dark pools/cash and to offshore locations, thus raising concerns on anti-money /CFT and taxation issues, require close watch.”
Another report from the Economic Times earlier this week on Monday, said that the Indian central bank has established a new internal unit to study, research and regulate emerging technologies like blockchain and Artificial Intelligence (AI).
Source familiar with this matter said that the RBI has formed this new unit discretely which has been operational for more than a month. The sources said: “As a regulator, the RBI also has to explore new emerging areas to check what can be adopted and what cannot. A central bank has to be on top to create regulations. This new unit is on an experimental basis and will evolve as time passes.”
This is not for the first time that RBI is talking of a state-owned digital currency. Previously in late 2017, RBI confirmed about its work on fiat-pegged cryptocurrency called Lakshmi Coin. However, not much details have been released so far regarding that project.