EconomyGeneral Studies III

RBI plans on digital currencies


Investors in India are waiting for government’s approval to give legal status to crypto-currencies as the pandemic has delayed the process.


Indian investors hold about $1.5 billion in crypto-currencies and are eagerly waiting for trading these commodities.


  • 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

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