Indian govt pushes central bank digital currency amid crypto concerns | Latest News India - Hindustan Times
close_game
close_game

Indian govt pushes central bank digital currency amid crypto concerns

ByRajeev Jayaswal
Nov 06, 2023 01:42 AM IST

The government and financial regulators are considering imposing higher restrictions, including a complete ban on private cryptocurrencies.

The government will promote a central bank digital currency (CBDC) as an innovative and cost-effective payment solution but it may not put to rest the Reserve Bank of India’s concerns regarding private cryptocurrency, such as risks to macroeconomic stability, by allowing any private crypto asset as a legal tender, two officials said.

Compared to a cryptocurrency, a CBDC is more eco-friendly as energy requirement of a digital currency depends on its underlying technological stack. (Reuters/File)
Compared to a cryptocurrency, a CBDC is more eco-friendly as energy requirement of a digital currency depends on its underlying technological stack. (Reuters/File)

A synthesis paper of the International Monetary Fund and Financial Stability Board highlighted these risks to the G20 nations in September and proposed a minimum threshold for regulation, they said, requesting anonymity.

Hindustan Times - your fastest source for breaking news! Read now.

“The paper doesn’t stop any country from imposing higher restrictions, as stringent as a complete ban,” one of them said. “The government and financial sector regulators, including the Reserve Bank, are seized with the matter.”

Compared to a cryptocurrency, a CBDC is more eco-friendly as energy requirement of a digital currency depends on its underlying technological stack, the other person said. “CBDCs could be based on algorithm-driven processes as against energy-intensive mining of crypto assets,” he said.

Underscoring the adverse impact of a cryptocurrency on the environment, he said that people mine to create a private cryptocurrency, but no such process is required for CBDC. Either a sovereign or a central bank can issue CBDCs by converting the bank’s existing balances to CBDC balances, he added.

Read Here: ED probing role of five women in Himachal crypto-currency fraud

The Reserve Bank has launched a digital rupee that would revolutionise the financial technology sector by creating new opportunities and lessening the burn in handling, printing and logistics management of cash. This is one more instrument to catalyse India’s fast emerging digital economy, he said.

A cryptocurrency is neither a commodity nor has any claim on commodities as they have no intrinsic value. “They are designed to bypass the established and regulated intermediation and control arrangements crucial for ensuring integrity and stability of monetary and financial ecosystem,” the first official said.

“Both innovation and benefits of virtual money is provided by CBDCs, while ensuring consumer protection and avoiding any threat to social and economic consequences of private virtual currencies,” he said. Due to its inherently cryptic nature, crypto assets are being used for terror funding, money laundering and tax evasion.

Central bank governor Shaktikanta Das recently said a cryptocurrency is a “serious threat to financial stability” for all countries, especially for emerging economies, which was recognised in the synthesis paper as well.

“Everybody understands and agrees that there are serious risks, and that risk has to be looked at and managed very carefully,” Das said at an event on October 31.

Read Here: Over 300 complaints received in cryptocurrency fraud, culprits won’t be spared, says Himachal Deputy CM

The issue of cryptocurrency has to be dealt with properly, he said. “I have only one question to believers of regulation to ask, how will you regulate it? Whom will you regulate and regulate what? Before you think of regulating it, let us first understand what is this cryptocurrency. Is it a financial product? Is it an asset? If it is an asset, what is the underlying? It is not a tangible thing. What is the definition of cryptocurrency? Till now, I have yet to see a credible definition of what a cryptocurrency is,” he said.

“I have yet to come across what you call any sort of credible explanation of the larger purpose that cryptocurrencies serve. The third point which comes to my mind, and which is very important, what cryptocurrencies will do for international transactions or domestic transactions, whatever you call it in the digital mode, which CBDCs cannot do. The fourth and final point is the basic question. It is a kind of a new currency system developing,” he said.

“Are governments and central banks across the world comfortable with private currency vis-à-vis a fiat currency, a currency issued by a central bank on behalf of the sovereign? These are the four fundamental issues which need to be first understood before we talk of any kind of regulation, and these are very well recognised by the IMF-FSB Synthesis Paper,” he added.

The leadership of the G20 has welcomed the synthesis paper because it is a good beginning to understand what the risks are and possible ways to deal with them. “We are not trying to stifle innovation. All innovation, which is in the overall public interest, must be supported and promoted. We are not against innovation, but innovation should serve a public purpose,” Das said.

Unveiling 'Elections 2024: The Big Picture', a fresh segment in HT's talk show 'The Interview with Kumkum Chadha', where leaders across the political spectrum discuss the upcoming general elections. Watch Now!

Get Current Updates on India News, PM Narendra Modi Live Updates along with Latest News and Top Headlines from India and around the world
SHARE THIS ARTICLE ON
Share this article
SHARE
Story Saved
Live Score
OPEN APP
Saved Articles
Following
My Reads
Sign out
New Delhi 0C
Monday, March 04, 2024
Start 14 Days Free Trial Subscribe Now
Follow Us On