Why Should RBI Consider Digital Currency? The most undemanding and uninterrupted way of introducing such a venture in India would be to allow the public to open accounts with the central bank

By Shantanu Agarwal

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The refusal of cryptocurrency and crypto-based specific purpose coins to just depreciate and die, even after the assumed bursting of the crypto bubble in India especially, reflects the extraordinary power of delusion. It also speaks something about our dissatisfaction with the current payment processing transaction methods, namely, cash and credit card, and the desire for faster, cheaper, safer and anonymous alternatives. Further, being consistent and ignoring change can be dangerous for a developing and youthful economy like ours.

Digital Currencies – The Way Forward

One solution to this can be - the introduction of a digital version of physical cash. A digital currency is a medium of exchange that is generated, stored and transferred electronically. Digital currencies are not typically represented in physical forms like the coins and currency notes of traditional currencies. Cryptocurrency is the most common category of digital currency and they rely on encryption to secure the process involved in generating units and conducting transactions. They are used similarly to conventional money for sale, purchase, and trade.

Central Bank at the Helm of Affairs

The most undemanding and uninterrupted way of introducing such a venture in India would be to allow the public to open accounts with the central bank, i.e. Reserve Bank of India itself. Not only such accounts would result in a displacement of the existing transaction and payment processing model but also give the bank issued debit cards and credit cards a good and healthy competition. Further, with the accumulation of funds within one infrastructure, it can be transferred within the central bank instantly and without fees (or minimal fees), which would result in easy and cheap transactions, greatly benefiting the public and provide easier monitoring and transaction monetizing opportunities to the government.

Aadhaar to the Rescue

Since the same accounts would be linked to the Aadhaar Cards, the unique Aadhaar Card number would act as a unique identification and account number and the same Aadhaar Card can later be evolved and deployed to be a RuPay Card, but only at a stage when the economy is accepting the shift towards digital transaction and the system of digital currency has become considerably stable. Further, the implementation of the same may result in drastic increase in the tax collection, since with introduction of digital currency, the government will able to monitor each and every financial transaction and can thereby shift from the bricks and mortar taxation model to transaction tax based model, which could lead to easier and timely tax collection as well as drastic increment in the tax collected by the government. But, that's a different conversation altogether, one that is preliminary to discuss at this stage of digital currency.

A Few Apprehensions

But, Digital Cash does come with disadvantages. The main disadvantages would be - the mass departure of deposits and if it becomes easy to convert bank deposits into central bank deposits, it could overwhelm the banks in weeks. In addition to these fundamental issues, the issue of somewhat slow adaptation to Digital Transaction and Dependency on Offline Mode of Payment that is Coins and Physical Currency Notes, and its displacement from household could destabilize the primary mindset deeply rooted into our mind.

To summarize, in an age where everything from elections to home automation is hackable, protecting the payments system from the shocks and liabilities arising out of such exploitation of technology, as well as making the payment system dynamic enough to adapt to the ever-changing and evolving digital world, recourse mechanism, implementation of laws and development as well as protection of payment system, should be on the top of the policymakers agenda. Certainly, there are issues with digital cash like energy use, processing speed, and money laundering, but, these issues are related to practice and not the Idea.

Shantanu Agarwal

Chief Innovation Officer, PAISALO Digital Limited

Shantanu, currently the Chief Investment Officer of Paisalo Digital. With the launch of the PAISALO digital app, he introduced a different dimension to the steady NBFC business with a strong history of 25 years. Introducing the technological disruption, Shantanu is focused on growth of the company and enabling the customers with hassle-free experience of lending. The PAISALO App is built on python platform.

He has worked in Forex Exchange Trading in Hong Kong and Singapore with Greenfield Advisory Pte Ltd; and worked in Algorithm Based Forex Trading in Singapore with Fulcrum Advisory Pte Ltd, worked on algorithm based trading for G10.

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