RBI plans on digital currencies
Context:
Investors in India are waiting for government’s approval to give legal status to crypto-currencies as the pandemic has delayed the process.
Background
Indian investors hold about $1.5 billion in crypto-currencies and are eagerly waiting for trading these commodities.
Details
- The government has aimed at banning all private digital currencies and instead launch a single RBI backed digital currency.
- Existing investors can sell their digital currency if the government bans trading, holding or mining. But they fear government will ask for declaration retrospectively.
Proposed legislation
- The government is set to introduce a law called Crypto-currency and Regulation of Official Digital Currency Bill, 2021.
- The bill will prohibit all private digital currencies and lay down the regulatory framework for official digital currency.
- The government is consulting all stakeholders before giving shape to the legislation. It is thinking of giving 3-6 month exit period prior to banning.
- Several banks are trying to implement DLT (Distributed Ledger Technology) to support financial infrastructure as a critical component of central bank digital currency (CBDC).
Reasons for ban
- RBI says that crypto-currencies can be used for illegal activities and is a threat to financial stability.
- There were also instances of fraud that forced RBI to ban all transactions using digital currencies.
- Digital currencies are too volatile as they are not backed by a solid commodity such as gold. This does not make them suitable for fiat currency.
Source: Indian Express
