In this Budget Session, Parliament has been proposed to introduce Crypto currency and Official Digital Currency Bill-2021 (Crypto currency and Regulation of Digital Official Currency Bill-2021). In fact, this "crypto-bill" will work towards banning all private crypto currencies such as Bitcoin etc. and creating a legitimate framework for India's own official and legal digital currency. In such a situation, the Indian financial institution 'Reserve Bank of India' (RBI) is planning to bring its domestic digital currency. Which will be regularized by both Government and RBI.
Questions that
is natural under these circumstances are - what is crypto currency and how is it
different from regular currency? What is the need of this kind of currency for
India? Why is RBI's own digital currency being brought in? What is the
difference between crypto currency and digital currency being brought by RBI?
Let's try get the answers through this
article.
What is the difference between Cryptocurrency and
common currency or notes?
Whenever we discuss about cryptocurrency, the first
question that arises in our mind is - what is the difference between cryptocurrency
and regular currency or normal note which is currently in online or physical
circulation? Basically, RBI or Government of India has given sovereign
guarantee on this type of common currency or note or could be say that it's a
valid currency circulated in India. Whereas, cryptocurrency is a private currency
and have not received any sovereign guarantee under RBI or any type of
government. Apart from this, cryptocurrency is used through a complex computer
programming and the Internet and like regular currency it does not have any
kind of personal control over it. For example, during Demonetisation, such as
1000 and five hundred notes were discontinued on the appeal of the Prime
Minister Modi, this is not possible in the context of cryptocurrencies.
Note: There are currently over 1500 cryptocurrencies
in use around the world. In addition to Libra announced by the social media
company Facebook in the past, there are some examples of cryptocurrencies like
Bitcoin, Ethereum etc.
· The main
objective and the social truth of the invention of cryptocurrency was to eliminate the role of banks
or other middlemen in financial transactions.
· In the normal banking process, the transaction details are verified by the banks while the exchange done in cryptocurrencies is verified through a decentralized database spread over many countries through ‘Blockchain Technology’.
RBI is working towards bringing its own digital
currency to India
In total, 20 Bills were brought in the budget session
2021 and in one Bill, the government talked about banning cryptocurrencies. In
such circumstances, it is being speculated that RBI is going to bring its own
official digital currency. According to RBI Deputy Governor BP Kanungo (BP
Kanungo, RBI Deputy Governer) - “ to bring India's own digital currency
RBI is working on ‘Digital Legal Tender’
for about a week before proposed the bill in Parliament, RBI has also set up an
internal committee for this work.”
RBI's Digital Currency to be named as CBDC
While banning cryptocurrencies, the government wants
an alternative that is regulated by the central bank. Which will be called
'Central Bank Digital Currency' (CBDC). Presently, RBI starts working on this
and develop its own digital currency which is not be in print format i.e. note
or simply paperless and which you can use
through your smart phone.
What is the meaning of CBDC?
CBDC is an electronic form of currency. Which will be
a legal currency and which will fully bear the liability of the Central Bank,
which means that it will be available to you in the form of sovereign currency.
CDBC brought by RBI will get sovereign guarantee
While there is no sovereign guarantee of
cryptocurrencies, RBI says - this digital currency brought would have got full
sovereign guarantee as it would be controlled by the central bank of the country . It is to be known that RBI
is still working in all these directions.
Why India needs Digital Currency
RBI Governor Shaktikanta Das believes that – “Due to
the rapid changes in the payment industry, the prevalence of private digital
tokens and the increasing cost of producing paper notes or coins the need for virtual currency or digital
currency has been felt for a long time. For these reasons, the Central
Bank is considering to bringing the Digital Currency (CBDC). In this direction,
an 'Inter-Departmental Committee' has also been formed to make all the studies
and guidelines on the
desirability and feasibility of introduction of a CBDC. The Committee also notes both pros and cons to issuing a CBDC and will take all other decisions related to
CBDC.
How CBDC will be different from UPI
In such a situation, the question arises in anyone's
mind that digital currency is already being used in India as Net Banking and
UPI (Unified Digital Interface), then what is the meaning of this new currency
of RBI? So the simple answer can be found in this way that you transfer money
through UPI in digital form but the person cashing that money can withdraw it
from the bank in print form i.e. in the form of notes. But this is not possible
under CBDC, it will remain only in digital form at the time of withdrawal and
you will be able to use it in the same way. which means, it will not have any
physical form.
Advantages of RBI's digital currency
The use of digital currency in place of notes and coins will usher in a new phase in the currency transactions in India and this will also prevent black money.
CBDC also may have some Cons
According to the media reports, CBDC may face some challenges in future due to the economic situation within a developing country like India, in addition to other reasons, such as:
- Widespread adoption challenges: Increased digitalization may leave a portion of society behind due to potential barriers around trust and data privacy, digital knowledge, and access to IT. For example, the central bank of Ecuador launched retail CBDCs in 2014. However, the program stopped due to low citizen adoption.
- Cyber risks: Defending against cyber attacks will be more difficult as the number of endpoints in a general purpose CBDC system will be significantly larger than those of current wholesale central bank systems.
- Cross-border payments: CBDCs can
facilitate cross-border and cross-currency payments independent from
work-hours and holidays in different time zones. However, different legal
and regulatory frameworks present a significant obstacle to cross-border
payments. Harmonizing these frameworks would be a challenge.
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