Given the benefits, the Reserve Bank of India (RBI) is working on a plan to introduce a central bank digital currency in stages, the finance ministry told the Lok Sabha on Monday.
The government received the RBI proposal in October to amend the Reserve Bank of India Act, 1934 to broaden the definition of "bank note" to include currency in digital form, according to the ministry in a written response to a question in the Lower House.
The benefits of Central Bank Digital Currency include reduced reliance on cash, higher seigniorage (government profits from currency issuance) due to lower transaction costs, and lower settlement risk, according to the ministry.
Ministry further said, “Introduction of Central Bank Digital Currency (CBDC) would also possibly lead to a more robust, efficient, trusted, regulated and legal tender-based payments option. There are also associated risks which need to be carefully evaluated against the potential benefits’’
In response to a question, the Finance Ministry clarified that cryptocurrencies are unregulated in the country and that the RBI had advised its regulated entities in May to conduct customer due diligence in accordance with regulations. These include 'know your customer' (KYC) norms and obligations related to anti-money laundering, combating terrorist financing, and Prevention of Money Laundering Act provisions, as well as ensuring compliance with Foreign Exchange Management Act (FEMA) provisions for overseas remittances.
In the winter session of Parliament, the ministry is expected to introduce a Bill to create a facilitative framework for the creation of the official digital currency to be issued by the RBI. According to the schedule for legislative business in the current session of Parliament, this Bill will prohibit all private cryptocurrencies in India while allowing for certain exceptions to promote the underlying technology of cryptocurrency and its uses.