RBI for widening scope of ‘bank note’ to include digital currency

What is the News?

The Reserve Bank of India(RBI) has proposed amendments to the Reserve Bank of India Act, 1934 to enhance the scope of the definition of ‘bank note’ to include currency in digital form. This would allow RBI to launch a Central Bank Digital Currency(CBDC). 

Moreover, on Bitcoin, the Government has informed that it does not collect data on Bitcoin transactions and on trading in cryptocurrencies. Further, the government has no plans to recognise Bitcoin as a currency.

​​What is the Central Bank Digital Currency(CBDC)?

CBDC is a digital form of fiat currency that can be transacted using wallets backed by the blockchain and is regulated by the central bank. 

How is it different from virtual currencies and crypto-assets?

Firstly, CBDC is different from decentralised virtual currencies and crypto-assets as others are not issued by the state and lack the ‘legal tender’ status. 

Secondly, CBDCs enable the user to conduct both domestic and cross border transactions which do not require a third party or a bank.

What are the benefits of CBDC?

a) Less dependence on cash b) Higher seigniorage due to lower transaction costs c) Reduced settlement risk and d) more robust, efficient, trusted, regulated and legal tender-based payments option.

Note: Seigniorage is the difference between the value of currency/money and the cost of producing it. It is essentially the profit earned by the government by printing currency.

Source: This post is based on the article “RBI for widening scope of ‘bank note’ to include digital currency” published in Indian Express on 30th November 2021.