The US Federal Reserve is working on a paper s that will focus on the benefits and risks of a central bank digital currency, which it issued recently.
Context
The US Federal Reserve is working on a paper s that will focus on the benefits and risks of a central bank digital currency, which it issued recently.
Reasons behind the move
- The paper is significant as cryptocurrency market has suffered its worst crash in over 12 months, with leading cryptocurrencies sliding over 25 per cent in 24 hours.
- US central bank comes in the wake of China joining multiple countriesthat have ended the central bank digital currency (CBDC) space, stoking concerns that this could undermine the US dollar’s position as the reserve currency of the world.
How are other jurisdictions looking at cryptocurrencies and digital currencies?
- China: China barred financial institutions and payment companies from providing any services related to cryptocurrency transactions. This means that banks and online payments channels, must not offer clients any service involving cryptocurrency, such as registration, trading, clearing and settlement.
- The announcement of a crackdown by Chinese authorities led to major cryptocurrencies seeing a crash in their pricesby as much as 40% in a 24-hour period.
- India: In India, the government has floated The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, which will prohibit all private cryptocurrencies and lay down the regulatory framework for the launch of an “official digital currency”.
- It was to be introduced in Parliament’s Budget session earlier this year, but was held up as the government continues discussions with stakeholders.
India’s Stand over Cryptocurrency
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.
Cryptocurrency and Regulation of Official Digital Currency Bill, 2021
- The new cryptocurrency bill might impact the existing investors who have invested in bitcoin in the country.
RBI and digital currency
- 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 poses 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.
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