BEFORE DWELLING FURTHER, IT IS WORTHWHILE TAKING INTO CONSIDERATION, THE RECENT DEVELOPMENT IN THE FIELD OF VIRTUAL AND DIGITAL CURRENCY;

El Salvador, a small coastal country in Central America, has become the first in the world to adopt Bitcoin, as legal tender. Philippines’ Central Bank has approved sixteen crypto exchanges to operate as “remittance and transfer companies”. Some of the countries, which have adopted the usage of cryptocurrency, includes Vietnam, Philippines, Peru while Brazil, Colombia, Argentina, Mexico, Chile, Switzerland and Greece. On the other hand, China started testing its official digital currency which is unofficially called “Digital Currency Electronic Payment”. Britain is exploring the possibility of creating a Central Bank Digital Currency. Cambodia has embarked on an ambitious project to grow its CBDC called Bakong. United States is considering a Digital Dollar, Europe a Digital Euro and in April, Russia has set out to create a prototype, i.e Digital Ruble.

In order to understand the recent changes in the paradigm and the position of our Country, it is relevant to understand about the virtual and digital currency in a comprehensive manner.

Cryptocurrencies (virtual currency), in simple terms means an asset, the functioning and regulation of which is not the reserve of State institutions but which has blockchain technology. A dubious concern in the banking finance sector in India is the debate over according legal status to crypto/ virtual currencies. In India, there is lack of regulation for the crypto sector, which has therefore created a grey area. At present, the Parliament has proposed to introduce Cryptocurrency and Regulation of Official Digital Currency Bill, 2021.

(“Crypto Bill”) in its ongoing monsoon session. Through the said Bill, it seeks to ban all private cryptocurrencies and create a legitimate framework for official digital currency in India, backed by government/RBI. Thus, at present, the fate of the cryptocurrency remains undecided. However, on 24.03.2021, the Ministry of Corporate Affairs released a notification mandating companies to inter alia make certain disclosures with respect to the virtual currency/ cryptocurrency transactions undertaken by them during a financial year. Overall, one could safely assume that the Government is still deliberating over the fate of virtual currencies/ cryptocurrencies, besides releasing various advisories cautioning investors against the risks associated with virtual currencies/cryptocurrencies in India. However, till the sword remains hanging, Reserve Bank of India (RBI) has not endorsed the use of virtual currencies due to the financial, operational, legal and security risks associated with virtual currencies. Thus, it nowhere appears that the RBI or the Government is willing to give whole hearted support to the virtual currency.

However, it nowhere rules out the understanding of the sudden spike in the adoption of the digital transactions. Therefore, keeping in mind the present situation of the country, i.e. public’s need for digital currencies and the changes across the globe, RBI is presently is working on a phased implementation strategy for its own digital currency.

Thus, steps are now being adopted to evaluate the application and viability of a Central Bank Digital Currency (CBDC), thereby substantially acknowledging that digital currencies are part of the present as well as the future. The reason behind bringing into account such a regulated currency is on account of the various risks associated with decentralised virtual currencies (crypto- bitcoin) such as value fluctuation risks, lack of regulation, technology-based risks, illegal and criminal use, besides increased consumption of resources for storage and processing demands. CDBC, as and when introduced, will be the only such digital currency which is issued by the RBI and approved by the Central government as legal tender.

As per Central Bank Digital Currency – Is This the Future of Money, published by RBI on 22.07.2021, a CBDC is the legal tender issued by a central bank in a digital form. It is the same as a fiat currency and is exchangeable one-to-one with the fiat currency and only its form is different. The report further states that CBDC is a digital or virtual currency but it is not comparable to the private virtual currencies that have mushroomed over the last decade. Private virtual currencies sit at substantial odds to the historical concept of money. They are not commodities or claims on commodities as they have no intrinsic value; some claims that they are akin to gold clearly seem opportunistic. Usually, certainly for the most popular ones now, they do not represent any person’s debt or liabilities. There is no ISSUER. They are not money (certainly not CURRENCY) as the word has come to be understood historically. Thus, CBDC has the CBDC has the “potential to be the next step in the evolution of money”.

It may however be remembered that any such introduction would however require changes in the RBI Act, as it would need to evolve substantially. The same being pertinent because currency as a legal tender in India so far has been in physical form only and is not equipped to deal with digital or virtual currency. Therefore, as and when such digital currency are enforced, it would also be relevant to introduce such changes in the Act. Further, relevant changes would have to be introduced in the foreign-exchange rules and IT laws.

On a positive note, it can be stated that the digital currency, as and when introduced, will be backed by sovereign and will lower the economy’s reliance on cash. It will also enable cheaper and smoother international settlements and protect people from the volatility of privacy cryptocurrencies. Thus, it is quite clear that digital currency is the future and is here to stay. Taking into account the steps adopted by the countries across the globe, the Central Government and RBI can no longer remain a mute spectator. With advancement in digitization, it would now be incumbent to bring upon the necessary changes. Further, on the contrary, the development will also ensure adequate access to financial services, promote digital payments, availability of 24/7 payment options, a new umbrella entity for retail payments and provide payment solutions at optimal cost.