RBI Keen on Broadening Scope of ‘Bank Note’ to Add Digital Currency
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Currently, the Reserve Bank of India is chalking out a step-by-step execution strategy for introducing the Central Bank Digital Currency (CBDC) with slight or no disturbance. A Central Bank is introducing CBDC; RBI sent a proposal to the government in October 2021 concerning the amendment to the Reserve Bank of India Act, 1934.

Private virtual currencies, digital currencies, and cryptocurrencies have become quite popular in the recent decade. However, governments and regulators have their doubts and concerns regarding these currencies and have been apprehensive about the related risks.

RBI has constantly been reiterating that cryptocurrencies could pose a severe threat to the financial stability and macroeconomics of the country. RBI also has doubts about the number of investors trading on cryptocurrencies and the market value they claim.

Benefits of CBDC introduction include potential benefits such as lesser cash dependency, higher seigniorage because of lower transaction expenses, and lower settlement risk. CBDC introduction could lead to a more efficient, robust, regulated, trusted, and legal tender-oriented payments option. However, the associated risks also need to be evaluated carefully against the significant benefits.

Nirmala Sitharaman, Finance Minister (FM), mentioned in reply to the Lok Sabha that the government does not have any proposal to identify Bitcoin as a currency in India. FM also informed that there is no data being collected regarding Bitcoin transactions by the government.

The government intends to present the Cryptocurrency and Regulation of Official Digital Currency Bill 2021 in the current Parliament’s Winter Session. This Bill pursues a ban on all cryptocurrencies except a few private cryptocurrencies to boost the underlying technologies while permitting RBI’s official digital currency.

For any clarifications/feedback on the topic, please contact the writer at bhavana.pn@cleartax.in

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