The Reserve Bank of India’s study to look at the feasibility of introducing a rupee-backed central bank digital currency was driven by the burden of current rising costs in printing paper fiat money.
The RBI suggests that there may be pressure put on other banks globally, particularly with the rise in interest in digital currencies for banking purposes. However, electronic fraud remains a concern, according to Financial Services company EY India. Company representative Manesh Makhia suggested, “The idea of a central bank-issued digital currency is very promising though issues around digital counterfeiting will need to be addressed.”
The Reserve Bank of India’s inter-departmental group, the first of its kind to look at digital currency in terms of banking, is all the more relevant given the recent RBI annual report findings released this week. It showed that 99.3% of the total demonetized money had been returned to the bank, leaving just over INR 100 billion (USD 141 million) in the market. The report noted:
“(Globally) the rising costs of managing fiat paper/metallic money, have led central banks around the world to explore the option of introducing fiat digital currencies.”
There are speculations that RBI may be considering a rupee-backed currency to overcome the exorbitant costs of printing paper money, although the bank’s interdepartmental group will also be looking at both blockchain and artificial intelligence and how these can be integrated into the banking system. A source suggested:
“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.”
It hasn’t been a happy few months in India for crypto traders though, who have been hit hard by RBI’s instructions earlier this year prohibiting financial institutions in India from providing cryptocurrency services, a ban which is currently being challenged in the country’s highest court.
Late last year, RBI announced it was looking into the possibility of a fiat cryptocurrency; the “Lakshmi coin”, named after the Hindu goddess of wealth and prosperity.
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