RBI To Explore Digital Currency Amidst Rising Prices of Paper Currency

By Sumedha Bose

With each passing day, The Reserve Bank of India, appears to loosen it’s stringent anti crypto stance. RBI released its annual report on Wednesday. 29th August, amidst myriad speculations in the market. The financial sector was already in a tizzy after RBI’s report stated in the ‘Currency Management’ section, that 99.3% of the total demonetised money had been returned to the bank. That still left around a little over Rs 10,000 crore out there in the market.

Just as the discussion about this over cups of tea was fading from a buzz to a lull, the crypto sector started rejoicing over the new committee that had been set up to look into regulation of cryptocurrency. The report read,

“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.”

The speculations doing the rounds in the market, hint at RBI’s intention to possibly consider a rupee-backed digital currency, as a cheaper alternative to paper currency, the managing costs of which, are exorbitant. It is being predicted that this committee would look into the viability of introducing such a currency in the market, which will be backed by the center.

According to sources, the total cost of printing notes for the financial year 2018 was around Rs 636 crore. Understandably, that burnt quite a big hole in the government’s treasury.

“(Globally) the rising costs of managing fiat paper/metallic money, have led central banks around the world to explore the option of introducing fiat digital currencies”. It is disappointing that an economy as big as India’s, has been on the back foot since a long time, with regard to digital currency developments.

Mahesh Makhija, Partner Advisory, Financial Services, Ernst and Young India also backed this approach by stating

“The idea of a central bank issued digital currency is very promising though issues around digital counterfeiting will need to be addressed.”  

It is true that crypto has become hugely popular among the young Indian crowd who view it as an easy way to make moeny. Limited knowledge is the main impediment here to investing sensibly. RBI’s report raised this concern too. Nischal Shetty, Founder and CEO of Wazir X, had an interesting insight on this.

RBI has consistently cited the volatility of cryptocurrenices as a justification for its anti-crypto stance. It has raised concerns over the security threats crypto posesses to the market. While it is true that a boom in the crypto market could lead to digital counterfeiting, financing of terrorism, money laundering and other such financial crimes, that however does not justify the blanket ban over crypto, which deprives India’s economy of growth opportunities. The RBI while embracing the crypto revolution, also wishes to maintain a tight control over its regulation. The industry will now eagerly await the report of this new committee.