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India’s central bank digital currency project very worrisome for crypto community

India's government recently said it would introduce a bill in Parliament to aid the creation of a sovereign digital currency. Crypto enthusiasts are dreading this

The bill seeks to prohibit all private cryptocurrencies in India Governments the world over, have long been wary of the negative use cases of cryptocurrencies China is a pioneer in the CBDC space as it pilots its Digital Yuan project

India’s cryptocurrency community was swept by a wave of nervousness and confusion after the government recently said it would introduce a bill in Parliament to aid the creation of a sovereign digital currency by the Reserve Bank of India (RBI) and ban all private cryptocurrencies. 

“The bill seeks to prohibit all private cryptocurrencies in India. However, it would allow certain exceptions to promote the underlying technology of cryptocurrency and its uses,” the government said in its remarks on the bill. In 2018, RBI decided to ban the use of banking channels to buy or sell cryptocurrencies, as it was concerned over its use for terror financing, money laundering, and other outlawed activities.

 Indian investors’ interest in Bitcoin and other cryptocurrencies revived after the Supreme Court in March 2020 lifted the RBI ban, giving cryptocurrencies a second chance in India. 

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Crypto exchanges prospering

Cryptocurrency exchanges such as Wazir X, Unocoin, and ZebPay have since seen a sharp increase in user registration and trading volumes. Wazir X recently clocked 1 million new users on its platform, reflecting a rising awareness and interest among Indians.

In a bid to help novice investors adopt cryptocurrency as a potential asset class, CoinDCX has launched CoinDCX Go, specially designed for new crypto investors as it offers a quick trading experience. The exchange is targeting to onboard 50 Mn Indian crypto investors this year. 

Famed investor Ray Dalio cautioned investors in a note that it would be foolish to assume that governments will stand by and let cryptocurrencies gain prominence over their fiat money.

India’s CBDC project

The RBI talked about exploring CBDCs in its newly released booklet titled ‘Payment and Settlement Systems in India: Journey in the Second Decade of the Millennium’.

The booklet defines Central Bank Digital Currencies (CBDCs) as a legal tender and a central bank liability in digital form denominated in a sovereign currency and appearing on the central bank’s balance sheet

The Reserve Bank of India (RBI), on January 25, 2021, noted that it was exploring whether there is a need for a digital version of a fiat currency and in case there is, how it can be operationalized. 

“Innovations are changing the payments space rapidly. This has made central banks around the world examine whether they could leverage technology and issue fiat money in digital form,” reads the booklet. 

It is worth noting that governments the world over have long been wary of the negative use cases of cryptocurrencies. Since they are decentralized forms of payment not under the purview of any country’s central bank, they have been used by nefarious actors terror financing. 

But in 2019, Indian Finance Minister Nirmala Sitharaman noted that there were several positive use cases of cryptocurrencies and their underlying technology, Blockchain.  

The Financial Action Task Force (FATF), an intergovernmental organization that comes up with policies to combat money laundering, had urged all countries to bring in regulation for cryptocurrencies to clamp down on the negative use cases of the technology. 

Today, China is a pioneer in the CBDC space as it pilots its Digital Yuan project, a mobile wallet for fiat currency in digital form. 

According to a Reuters report, China’s digital yuan is probably the most advanced of the several CBDC initiatives that are being developed around the world.