RBI plans an upcoming Bill for digital currency

The government is planning for a law to ban private digital currencies and is favouring a digital currency backed by the Reserve Bank of India.

Context

The government is planning for a law to ban private digital currencies and is favouring a digital currency backed by the Reserve Bank of India.

It will prohibit all private cryptocurrencies and lay down the regulatory framework for the launch of an “official digital currency”.
The new cryptocurrency bill might impact the existing investors who have invested in bitcoin in the country.

RBI is exploring DLT (Distributed Ledger Technology) in improving financial market infrastructure.
A fiat currency will be protected from the volatility and fluctuations in Bitcoin and other cryptocurrencies.
RBI had expressed concern over the cryptocurrencies and says that it supports the illegal activities, and pose a threat to financial stability.
In April 2018, RBI banned banks and other regulated entities from supporting crypto transactions after the digital currencies were used for frauds.
In March 2020, the Supreme Court struck down the ban as unconstitutional.
Some other central banks have also started to support the regulation of cryptocurrency. Recently China has also issued its Central Cryptocurrecny.

Bitcoin is a decentralized cryptocurrency which means that it is not controlled by any central authority like a central bank.
Whereas, the digital yuan will be issued by the People’s Bank Of China.
Bitcoin is also built on a technology known as blockchain but might have a different technical make up from the digital currency.
Bitcoin are completely anonymous. However, the digital currency may have a controlled anonymity.

The Chinese government has started issuing blockchain-powered digital currency to its citizens chosen through lottery system.

Issuing authority: It is a central bank digital currency which aims to replace some of the cash available in circulation.
Blockchain technology: It is a blockchain-powered digital currency issued by the central bank.
Legal: It will be a legal tender in China and will carry no interest paid on it.
Significance: This currency will be easy to use and protect form counterfeiting.
- It has tendency to reach the unaccounted ones.
Distribution: The currency could be distributed either through the lottery system by the local government or by the Central bank to commercial bank to circulate it further.
Controlled system: It will be have a controllable anonymity that would involve the disclosing of digital wallets to PBOC as the sole third party.
- Users would have a “loose coupling of accounts”, means that their current bank account may not be too closely linked to their digital yuan account.