RBI plans and an upcoming Bill: Where are digital currencies headed?
Why in the News?
- The government, which plans a law to ban private digital currencies, favours a digital currency backed by the Reserve Bank of India.
- Uncertainty over the legal status of cryptocurrencies is unnerving Indian investors who, according to unofficial estimates, hold around $1.5 billion (Rs 10,000 crore) in digital currencies.
History so far?
- In April 2018, RBI banned banks and other regulated entities from supporting crypto transactions after digital currencies were used for frauds.
- In March 2020, the Supreme Court struck down the ban as unconstitutional. One of the reasons it gave was that cryptocurrencies, though unregulated, were not illegal in India.
The proposed law
- The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, which will prohibit all private cryptocurrencies and lay down the regulatory framework for the launch of an “official digital currency”, was to be introduced in the next Parliament Session.
- A 3-6 month exit period prior to banning the trading, mining and issuing of cryptos has been discussed in inter-ministerial discussions.
RBI and digital currency
- RBI had said central banks are exploring DLT (Distributed Ledger Technology) for application in improving financial market infrastructure, and considering it as a potential technological solution in implementing central bank digital currency (CBDC).
- A recent survey of central banks conducted by the Bank for International Settlements found that some 80 per cent of the 66 responding central banks have started projects to explore the use of CBDC in some form, and are studying its potential benefits and implications for the economy.
- RBI had expressed concern over other cryptocurrencies due to their volatility, saying they can be used for illegal activities, and pose a threat to financial stability.
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