Nirmala Sitharaman, India’s finance minister announced the introduction of Digital Rupee, the nation’s new digital currency in the union budget. According to the minister, digital currency will
be backed by blockchain technology.
Digital Rupee: A new digital currency
In October 2021, the Reserve Bank of India (RBI) received an official nod for amending a 1934 Act for enhancing the definition of ‘bank note’ for including digital currency. “Central Bank Digital Currency (CBDC) is introduced by a Central Bank. The government has received a proposal from the Reserve Bank of India (RBI) in October 2021 for an amendment to the Reserve Bank of India Act, 1934 to enhance the scope of the definition of ‘bank note’ to include ‘digital rupee’ currency in digital form. RBI is also examining use cases and working out a phased implementation strategy for the introduction of CBDC with little or no disruption”, said Pankaj Chaudhary. Chaudhary is the finance ministry’s minister of state.
The move comes with several significant benefits, including lowering the dependency on cash. Chaudhary in a statement added that the move can reduce settlement risk and higher seigniorage due to lower transaction costs. “Introduction of CBDC would also possibly lead to a more robust, efficient, trusted, regulated and legal tender-based payments option. There are associated risks that should be carefully evaluated against the potential benefits,” he added.
More on the move and cryptocurrency bill
According to the government, the introduction of CBDC is in the upcoming bill on the regulation of cryptocurrency during the Parliament’s winter session. An Economic Times report stated that it is a response to RBI’s concerns about macro-economic stability. A source stated that the “government’s response is not to ban cryptocurrencies but rather to provide cryptocurrency via the RBI”.
The 2021 Cryptocurrency and Regulation of Official Digital Currency Bill is seeking to prohibit all private cryptocurrencies. It is also seeking to introduce the Digitial Rupee, an RBI-backed cryptocurrency. Moreover, it is proposing “to create a facilitative framework. It is for creating the official digital currency issued by the RBI. And to allow for certain exceptions to promote the underlying technology of cryptocurrency and its uses”. Additionally, Shaktikanta Das, the RBI governor stated the Digital Rupee will be introduced by the end of this year. “I think by the end of the year, we should be able to. We would be in a position, perhaps — to start our first trials,” he stated.