RBI considering digital currency launch to counter crypto-currencies; studying pros & cons

In a significant development in going digital, Reserve Bank of India (RBI) is mulling on launching its own digital currency in near future as Central Bank is currently working towards a phased implementation strategy and examining cases that could be implemented with little or no disruption in  banking system and monetary policy.

RBI Deputy Governor T Rabi Sankar on Thursday said RBI is working on a phased implementation strategy for its own digital currency and is in process of launching it in wholesale and retail segments in near future.

"... conducting pilots in wholesale and retail segments may be a possibility in near future. So, some progress has been me. You know we could likely come up with this in near future," Sankar said.

 RBI Deputy Governor participated in an online discussion organised by Vidhi Centre for Legal Policy and he said that idea of Central Bank Digital Currency (CBDC) is ripe and many central banks in world are working towards it.

"Central banks across globe are engaged in exploring CBDCs, and a few countries have also introduced such concepts," he said while also ding that "RBI has also been exploring pros and cons of introducing CBDC for quite some time like or central banks".

'To protect consumers from volatility of virtual currencies'

This assumes significance for Indian markets as cryptocurrencies continue to gain popularity across world while several countries and economies show reluctance to accept decentralised system of blockchain technology on which cryptocurrencies work. Although blockchain technology is touted to be currency of future by several observers and experts, volatility and risk involved in investment in cryptocurrencies is something central authorities across world cannot ignore.  RBI Deputy Governor said CBDCs are needed to protect consumers from volatility of virtual currencies which have seen drastic fluctuations in ir value.

"Developing our own CBDC could provide public with uses that any private virtual currency can provide and to that extent might retain public preference for rupee. It could also protect public from abnormal level of volatility some of se virtual currencies experience," he said.

Consequential amendments will also be required in Coinage Act, Foreign Exchange Management Act (FEMA) and Information Technology Act to introduce digital currency, according to Sankar. RBI is looking into se aspects along with underlying technology and validation mechanism for CBDCs as associated risks also need to be thoroughly evaluated along with potential benefits, revealed RBI's Deputy Governor.

In India, a high-level inter-ministerial committee constituted by Ministry of Finance has examined policy and legal framework and has recommended introduction of CBDC as a digital form of fiat money in country.

(With PTI Inputs)