With Bitcoin and other popular crypto currencies booming, Indian Government is planning legislation that would create the ground for the introduction of an official digital currency and prohibit private cryptocurrencies. A bill for this is likely to be introduced in the ongoing session of parliament. As per Lok Sabha Bulletin Part II, The Crypto-currency and Regulation of Official Digital Currency Bill, 2021 will be introduced by the Government of India to ban trading and investments in private crypto-currencies such as Bitcoin during the Budget session of the Parliament and will provide the Reserve Bank of India (RBI) with the legal powers to develop Central Bank Digital Currency (CBDC).
Sources in the Government said the legislation draws extensively from the recommendations of the SC Garg Committee which was set up by the Government to provide a detailed overview and way forward on cryptocurrencies. The key recommendation of the Garg committee covered the banning of private currencies and introducing an official digital currency.
Given the importance of the development, Cryptocurrency and Regulation of Official Digital Currency Bill is expected to be a hot topic for MBA GD PI WAT 2021. Read this detailed article by MBAUniverse.com to prepare yourself.
The purpose of theCryptocurrency and Regulation of Official Digital Currency Bill, 2021 has been described as:
- to create a facilitative framework for an official digital currency Central Bank Digital Currency (CBDC) issued by the RBI
- to “prohibit all private cryptocurrencies in India”.
- The Bill also seeks to prohibit all private cryptocurrencies in India, however, it allows for certain exceptions to promote the underlying technology of cryptocurrency and its uses.
Let us understand more about Central Bank Digital Currency.
What is Central Bank Digital Currency (CBDC):
Digital currencies or cryptocurrencies are gaining popularity across the world. This has made most central banks look at launching a digital currency controlled by them to address their shortcomings while hastening the shift towards a cashless society.
The Central Bank Digital Currency (CBDC) is a legal tender and liability of a nation's central bank in the digital form. It is denominated in a sovereign currency and appears on the balance sheet of a nation's central bank. CBDC is a digital currency which can be converted/exchanged at par with similarly denominated cash and traditional central bank deposits of a nation.
Importance of CBDC:
The Reserve Bank of India (RBI) stated that the innovations have been rapidly changing the payments space and this has made central banks across the world examine whether they could leverage on the technology and issue fiat money in the digital form or not. Recently, RBI indicated that it is conducting a feasibility study on the development of a government-backed digital currency.
Advantages of CBDC:
At present, central banks of various nations are currently examining the positive implications that a digital currency contributes to financial inclusion, economic growth, technology, innovation and increased transaction efficiencies.
- Real-time money transfer: Money transfers and payments can be made in real-time from the payer to payee without relying on intermediaries such as banks.
- Alternative to physical cash: Digital currencies issued by central banks would provide for a modern alternative to physical cash.
- Easy tracking of currency: With the introduction of CBDC in a nation, its central bank would be able to keep a track of the exact location of every unit of the currency.
- Income Tax: Tax avoidance and tax evasion will be near to impossible as methods such as offshore banking and unreported employment cannot be practised to hide financial activities from the central bank.
- Curbing Crime: Criminal activities can be easily spotted and ended such as terror funding, money laundering, and so forth.
Need for CBDCs in India:
Does India really need CBDCs? In May 2020, China started testing its Digital Yuan-- Digital Renminbi (RMB). Several other nations have also started research and pilot projects related to CBDC such as Canada, USA and Singapore. Also, China and USA are battling to gain the supremacy across markets with the introduction of new-age financial products and India may get caught up in this digital proxy war.