For some time now, the Reserve Bank of India has been exploring digital alternatives for the country’s currency, the Rupee. They issued a statement yesterday, that they were considering cryptocurrency approach for a digital rupee. In an interview with the Economic Times, RBI executive director Sudarshan Sen said, “We have a group of people looking at fiat cryptocurrencies as an alternative to the Indian rupee. We are looking into this closely,”
However, in the same interview, Sen also stated that the RBI is not comfortable with non-fiat currencies like Bitcoin. Given the lack of an intermediary with popular cryptocurrencies, it naturally rules out the options of using Bitcoin or Ethereum.
Not comfortable with Bitcoin
Unlike Japan, India wants a centrally controlled blockchain based digital currency, for a possible replacement of the Indian Rupee. Sen specifically expressed discomfort about using non-fiat cryptocurrencies like Bitcoin. He said, “As for non-fiat cryptocurrencies, we are not comfortable. Bitcoin, for example, is a private cryptocurrency.”
Traditionally, the RBI has taken an unfavorable stance against the use of Bitcoin. Earlier this year, RBI’s deputy director, R Gandhi, explicitly warned Bitcoin investors and traders. He said, “I believe it’s(Bitcoin) potential is being overstated.”
Apart from the lack of a regulatory body, the RBI has expressed concerns over Bitcoin’s value. Gandhi said that its value is a “matter of speculation” and are also uncomfortable with the possibility of untraceable illegal activities.
Blockchain based currencies have brought down bank transaction costs drastically and this could be one of the reasons why the RBI is looking into crypto. The operating costs of the government are only going to increase with the increasing demand for new currency printing. Cryptocurrency will make digital transactions more efficiently.
This is a welcome move.
The RBI’s fears of the wrong usage of Bitcoin aren’t unfounded. But notions of its lack of value need more introspection. Furthermore, it must look to more progressive governments like Estonia and Japan, who have integrated popular cryptocurrencies in their markets.