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RBI plans phased introduction of digital currency

By IndianMandarins- 23 Jul 2021
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New Delhi (23.07.2021): With technology catching up everywhere, Reserve Bank of India Deputy Governor T Rabi Sankar said that the Central Bank is considering a “phased introduction” of digital currency as it will need legal changes to be made in the nation’s foreign-exchange rules and information-technology laws.

The Deputy Governor was delivering a speech to outline the RBI’s plans when he said policymakers were considering running pilot programmes for the proposed Central Bank digital currency. Its introduction will protect people from the volatility of private virtual currencies.

“Central banks have increased their attention on digital currencies,” in recent years, Sankar said, adding that the introduction of such currencies will help in bringing down the usage of cash in the economy, while minimizing the damage to the public from the usage of private currencies.

His speech comes just days after the European Central Bank took a major step toward a digital euro approving an investigation phase that could ultimately lead to a virtual currency being implemented around the middle of the decade. The next stage will last 24 months and aims to address key issues on design and distribution.

Most central banks trail China where trials of a digital currency have started in several cities. Eastern Caribbean islands that share a central bank, including Grenada and St Kitts and Nevis, have already launched their own versions. The US Federal Reserve and the Bank of England are looking into the possibilities for their economies.

In its annual Report on Currency and Finance earlier this year, the RBI said that Central Bank-backed digital currencies could be designed to promote non-anonymity of monetary transactions and financial inclusion by direct transfers.

Interest-bearing digital fiat can also increase the economy’s response to changes in the policy rate. In emerging markets, facing large scale-capital inflows, such a currency can act as an instrument of sterilization, alleviating the constraint that a finite stock of government securities in the Central Bank’s balance sheet poses, the report said.

The RBI report said that since central bank digital currencies provide anonymity, they may have implications for cross-border transactions. To curb this, appropriate safeguards would need to be laid down under existing anti-money laundering and financial-terrorism laws.

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