India's digital currency is on its way. The government informed Parliament on the first day of winter session that it is working on a digital rupee. This is the first official confirmation of the move, after days of speculation over RBI's blueprint for digital currency following the listing of the Cryptocurrency Bill for consideration in the present session.
RBI sent the proposal to the finance ministry last month to amend the definition of 'bank note' to include currency in digital form. "The RBI has been examining use cases and working out a phased implementation strategy for introduction of Central Bank Digital Currency [CBDC] with little or no disruption," said the finance ministry note in response to a question in the Lok Sabha on Monday.
There has been major turmoil and confusion in the cryptocurrency market ever since the Cryptocurrency Bill was listed to be taken up in the winter session of the Parliament, which kicked off today. The bill's description that it is to "create a facilitative framework for creation of the official digital currency to be issued by the RBI" as well as its supposed aim of prohibiting "all private cryptocurrencies in India" had caused significant price fluctuation in the crypto market.
While the Parliament confirmation still leaves many ambiguities over the future for private cryptocurrencies, at least until the provisions of the bill become public, Monday afternoon's statement is the first clear indication of the official stance.
"The introduction of CBDC has the potential to provide significant benefits such as reduced dependency on cash, higher seigniorage due to lower transaction costs, reduced settlement risk," says the note. The introduction of CBDC would also possibly lead to a more robust, efficient, trusted, regulated and legal tender-based payments option.
But there is a caveat. "There are also associated risks which need to be carefully evaluated against the potential benefits," the government warns.