RBI’s Initiative on Digital Currency

As the Winter session of the Parliament begins, all eyes are on the Central Government’s introduction of the much-awaited The Cryptocurrency and Regulation of Official Digital Currency Bill 2021. The Crypto industry is awaiting a positive regulation that may permit investing and trading in crypto with certain restrictions. The buzz around the Crypto Bill till now has been both positive and negative, and the Bill is one of the many items on the list of bills to be introduced in Parliament during the Winter Session.

This announcement comes in the wake of the Indian government recently announcing that it has planned to move a Bill regulating private cryptocurrency in India during the upcoming winter session of the Parliament. The decision, which was announced in a Lok Sabha bulletin, has sparked a ripple effect in the cryptocurrency market, as Bitcoin, Solana, Dogecoin prices crashed in the country. While the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 seeks to regulate the circulation of private cryptocurrency in India, it also proposes to create a framework for the introduction of an official digital currency issued by the Reserve Bank of India (RBI).

According to the bulletin listing the legislative business posted on Lok Sabha’s website, ‘The Bill also seeks to prohibit all private cryptocurrencies in India, however, it allows for certain exceptions to promote the underlying technology of cryptocurrency and its uses.’ The Bill to ban all private cryptocurrencies in India, with a few expectations to promote blockchain technology will be introduced in the upcoming winter session of the parliament.

In a statement issued by the bank, the RBI describes the difference between CBDC and cryptocurrency as follows: ‘CBDC is a digital or virtual currency but it is not comparable to the private virtual currencies that have mushroomed over the last decade. Private virtual currencies sit at substantial odds to the historical concept of money. They are not commodities or claims on commodities as they have no intrinsic value; some claims that they are akin to gold clearly seem opportunistic. Usually, certainly for the most popular ones now, they do not represent any person’s debt or liabilities. There is no ISSUER. They are not money (certainly not CURRENCY) as the word has come to be understood historically’.

As per latest updates, The Bombay High Court on November 29 directed the Union government to apprise it on January 17, 2022 about the introduction of the bill on cryptocurrency and what further action has been taken on the issue. A division bench of Chief Justice Dipankar Datta and Justice M S Karnik said it cannot direct the parliamentary legislation to enact a law. The court was hearing a public interest litigation (PIL) filed by advocate Aditya Kadam, seeking directions to the central government to formulate laws to govern the use and trade of cryptocurrency within the country, states a report in Financial Express (https://www.financialexpress.com/money/cryptocurrency-bill-2021-live-updates-crypto-bitcoin-ban-regulation-official-digital-currency-parliament-highlights-key-points/2378014/).

Kadam highlighted the unregulated business of cryptocurrency in the country which, he claimed, affects the rights of the investors as there is no mechanism in law to redress their grievances. Advocate D P Singh, appearing for the Centre, told the court that the Cryptocurrency and Regulation of Official Digital Currency Bill has been introduced and would be discussed in the winter session of Parliament. The court said it would keep the petition for further hearing on January 17.

With regards to the benefits of a Central Bank Digital Currency (CBDC),  the Finance Ministry says the Government has received a proposal from Reserve Bank of India (RBI) in October, 2021 for amendment to the Reserve Bank of India Act, 1934 to enhance the scope of the definition of ‘bank note’ to include currency in digital form.RBI has been examining use cases and working out a phased implementation strategy for introduction of CBDC with little or no disruption. Introduction of CBDC has the potential to provide significant benefits, such as reduced dependency on cash, higher seigniorage due to lower transaction costs, and reduced settlement risk. Introduction of CBDC would also possibly lead to a more robust, efficient, trusted, regulated and legal tender-based payments option. There are also associated risks which need to be carefully evaluated against the potential benefits, states the Ministry.

So, let's wait and watch what Government is going to conclude and implement the norms/regulations on Digital Currency.

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