A group of multiple departments has been initiated by the Reserve Bank of India that will be exploring how feasible it will be if a rupee version of digital currency is introduced. This plan was initiated to fight against the increasing costs that are needed to manage currencies that are in paper form. It is the very first time that RBI has taken the initiative concerning digital currency and potentially using it.
To quote the Annual Report of 20017-18, the RBI stated: “In India, an inter-departmental group has been constituted by the Reserve Bank to study and provide guidance on the desirability and feasibility to introduce a central bank digital currency.”
RBI proposed that there was a need for a digital asset that was centralized since the cost required to manage fiat paper or metallic money is increasing each day it has pushed the centralized banks throughout the world to take a look at the other options like launching fiat cryptocurrencies. In the year 2018 about Rs 636 crore was spent on printing paper currencies in India.
RBI also found two other factors; it alluded to sudden changes that occurred in making payments as well as publishing of private digital tokens that made it even more curious to take a look at launching a bank for digital asset that is centralized.
When digital money is backed either by gold or fiat which a type of asset they are known as a stable coin. The value of stable coins is less volatile when compared to bitcoin or ethereum type of cryptocurrencies. Against the US dollars there two stable coins that have been set, one is Tether and other is TrueUSD which are very popular. Backed by their assets like oil and mineral reserves, the government of Venezuela also introduced their won digital asset known as Petro very recently.
EY India’s Financial Services, Partner Advisory, Mahesh Makhija stated, “The idea of a central bank issued digital currency is very promising though issues around digital counterfeiting will need to be addressed.”
The RBI looks like they are open to the objective of holding distributed ledgers in settlement processes, systems used for payments and clearing even though they are being careful about issuing digital currencies privately.
Makhija said, “This is a welcome development – version 2.0 of UPI introduces the concept of a ‘Block and Release’ capability that could work well with smart contracts driven on a distributed ledger.”