The Reserve Bank of India has come up with an inter-departmental panel to study the desirability and feasibility of launching a central bank backed, Rupee-based Digital or which is also known as Virtual Currency (VC), it said in its annual report for 2017-2018. The RBI cited increasing costs of managing paper/metallic money as a reason for looking to introduce a digital currency.
To put things into context, the total cost of printing paper notes in India stood at Rs 636 crore in 2017-18 (fiscal year), according to a report by India Today. It also cited some of the rapid changes in the payments industry, along with the emergence of private digital tokens like Bitcoin, as factors for considering to launch a central bank backed digital currency.
This announcement is a follow up to the central bank’s notification in April, when it said that it not only created such a panel, but also claimed to have its report ready by the end of June 2018. However, neither did it provide an update on the panel in the annual report, nor did it respond to an email on the matter.
This is not the first part of a ‘legal’ virtual currency which is doing the rounds though. According to a report by Business Standard, the central government was considering to launch its own cryptocurrency called ‘Laxmi’. RBI’s Executive Director Sudarshan Sen also said that the central bank was closely looking at ‘fiat cryptocurrencies’ as an alternative to the Indian Rupee.
To reiterate, fiat money is currency that a government has declared to be legal tender, but it is not backed by a physical commodity. It’s value is purely derived from the supply/demand chain. A digital variant of such a currency would also going to be defined as a fiat cryptocurrency.
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