- The RBI is citing the rising costs of printing paper money among other factors behind the CBDC.
- The future of digital asset economy in India is still in Limbo.
Cryptocurrency has been a delicate matter in India. There have been both highs and lows in the country when it comes to digital assets like Bitcoin (BTC) and Ethereum (ETH). However, this could be a thing of the past following a recent confirmation by the Reserve Bank of India (IRB) for the formation an interdepartmental group that has been tasked with carrying out feasibility studies in regards to rolling out a central bank digital currency (CBDC) backed by the rupee.
The mandate of the interdepartmental group is found in the Bank’s Annual Report 2017-18. This finally confirms the rumors that emanated from a Monetary Policy Committee (MPC) of India meeting held in April 2018. The Economic Times reported that it cost the IBI Rs 6.3 billion (about $ 89 million) to print paper money for the fiscal year 2018. A section of the RBI report reads:
“Globally, the rising costs of fiduciary paper/money management have led central banks around the world to explore the option of introducing fixed digital currencies.”
While increasing costs of printing money is a major factor of consideration, it is not the only one. Other key considerations are the “rapid changes in the payment industry” and the increasing number of privately issued digital tokens. The Economic Times reported that Mahesh Makhija from EY India said:
“The idea of a digital currency issued by the central bank is very promising, although the problems related to digital counterfeiting should be addressed.” In addition, he noted that RBI’s indication that the idea of using distributed accounting technology (DLT) for payment, clearing and settlement processes is open is “a welcome development”.
The RBI is encouraging coordination among other regulators in the world to ensure that the risks that come as a result of virtual currencies are addressed. In addition to that, the authority said that it will continue to monitor:
“Exchanges to peer-to-peer mode, which can also imply greater use of cash. The possibilities of migration from cryptocurrency bureaus to dark / cash funds and to offshore locations raise concerns about Anti Money Laundering (AML) / Combating the Financing of Terrorism (CFT) and tax matters “.
The future of digital asset economy in India remains in Limbo. However, the current steps the government is taking could result in a stable situation but is the regulatory policies formulated this year are applied; the Indian market is going to stagnate.
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