RBI working on introducing central bank digital currency: finance ministry

RBI working on introducing central bank digital currency: finance ministry
Photo Credit: Reuters
29 Nov, 2021

The Reserve Bank of India (RBI) is working on a plan to introduce a central bank digital currency in phases given its benefits, the finance ministry told Parliamentarians on Monday. 

The government received the RBI proposal in October for amending the Reserve Bank of India Act, 1934 to enhance the scope of the definition of ‘bank note’ to include currency in digital form, the ministry said in a written reply to a question in Lok Sabha. 

“RBI has been examining use cases and working out a phased implementation strategy for introduction of a central bank digital currency (CBDC) with little or no disruption,” the ministry said, adding that it has potential to offer significant benefits.  

These include reduced dependency on cash, higher seigniorage (government’s profits from issuing currency) due to lower transaction costs and reduced settlement risk, the ministry said.  

“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,” the ministry said. 

Finance ministry also clarified in answer to another question that cryptocurrencies are unregulated in the country and that RBI has in May advised its regulated entities to carry out customer due diligence as per regulations. These cover ‘know your customer’ (KYC) norms and obligations related to anti-money laundering, combating of financing of terrorism and Prevention of Money Laundering Act provisions in addition to ensuring compliance with the provisions of Foreign Exchange Management Act (FEMA) for overseas remittances. 

The ministry is expected to introduce a Bill in the winter session of Parliament to create a facilitative framework for creation of the official digital currency to be issued by the RBI. This Bill will prohibit all private cryptocurrencies in India but will allow for certain exceptions to promote the underlying technology of cryptocurrency and its uses, as per the schedule for legislative business in the current session of Parliament.  

In response to another question on whether the government was aware that Bitcoin transactions are blooming in the country and whether there was any proposal to recognise Bitcoin as a currency, a written reply from the finance minister said the government does not collect data on bitcoin transactions and that there was no proposal to recognise it.