A sizeable chunk of urban India has gotten used to digital transactions, ranging from credit and debit cards to UPI. So, are we ready for the next big leap in fintech—the digital rupee?
There are digital currencies already in circulation. Bitcoin, invented by a Japanese entity identified only as Satoshi Nakamoto, has been in circulation for over a decade, though its reputation has been unsavoury. Popularly asked for by hackers and those seeking ransom online, Bitcoin’s lasting contribution could well be the secure technology for digital money transfer that it spawned—blockchain. Many governments are now considering the idea of a central bank-backed digital currency.
India had tried to squash trading in cryptocurrencies like Bitcoin with a blanket ban in 2018. The Supreme Court intervened and threw the government order out the window just before the pandemic hit. Now, some reports indicate that the Union finance ministry is toying with a legislation which will ban cryptocurrencies.
Perhaps not the smartest way to go about it, as countries around the world are slowly accepting the inevitability and significance of digital currency. Most important among them, and this should be a warning to India as well, is the People’s Bank of China that is working on a digital yuan. “China adopting a digital currency and adopting an alternative to global money exchanges will be extremely disruptive and will have others playing catch up,” warns Robin Bhowmik of Manipal Global Academy of BFSI.
According to a paper by the Bank for International Settlements, 63 countries are in various stages of digital currency adoption, as they believe it can put a check on online fraud, cyber crimes, money laundering as well as avoid the high transaction cost that cash involves.
Facebook had tried to come up with a global digital currency called Libra last year, but it has not gained much traction, with fintech players withdrawing their initial support and multiple countries, including the US, scuttling its ambitions. The US had initially mused, and dropped, the idea of a digital dollar, though there seems to be a new move by American legislators to bring into effect a digital dollar using blockchain technology.
“Digital currencies will be clearly government-driven, as they would be sensitive to private players launching digital currencies,” predicts Sethurathnam Ravi, economist and former chairman of the Bombay Stock Exchange. “In a country like ours financial literacy is still far away. How I see it is that authorities want the regulation to be in place first, so that there is no misuse.”