Blockchain Technology Current Affairs

RBI constitutes inter-departmental group to study launching of fiat digital currency

The Reserve Bank of India (RBI) has constituted an inter-departmental group to study and provide guidance on feasibility to introduce fiat digital currency backed by it. It will be submitted by end-June 2018.

Fiat currency is currency that a government has declared to be legal tender. It is different from cryptocurrency or virtual currency like Bitcoin which is not legal tender and not backed by government.

Background

Central banks around world are exploring options of introducing ‘fiat’ digital currencies in landscape of rapidly changing payments industry with technological evolution. The emergence of private digital tokens such as  virtual currencies and rising costs of managing fiat paper and metallic money have led them to explore option of introducing ‘fiat’ digital currencies.

The Bank of England was one of the first to initiate a global discussion on prospects for introduction on Fiat digital currency. In November 2017, the central bank of Uruguay had announced to begin test to issue digital Uruguayan pesos. The Central bank of Sweden is however the closest to consider its implementation.

Fiat Digital Currency

Fiat Digital Currency (or Central bank digital currency) is the digital form of fiat money which is currency established as money by government regulation or law. As opposed to private digital tokens, fiat digital currency will be issued by central bank.

Fiat Digital Currency will constitute liability of central bank, and will be in circulation in addition to widely used paper and metallic currency. They will be based on blockchain technology which is backbone of unregulated virtual currencies like bitcoin.

They will be legal tender as compared to virtual currencies that raise concerns of consumer protection, market integrity and money laundering, among others. Blockchain technology behind it has potential benefit for financial inclusion and enhancing efficiency of financial system.

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Petro: Venezuela becomes first country to launch virtual currency

Venezuela become first sovereign country to officially launch its own cryptocurrency called Petro backed by oil, gas, gold and diamond reserves to circumvent US-led financial sanctions. Venezuelan President Nicolas Maduro has claimed that the pre-mined cryptocurrency Petrohas raised US $735 million on the first day of its pre-sale.

Key Facts

The Petro aims to help Venezuela to advance in issues of monetary sovereignty, to make financial transactions and overcome financial blockade. It is based on blockchain technology. Its value will be pegged to price of barrel of Venezuelan oil from the previous day. Government will accept Petro as a form of payment of national taxes, fees, contributions and public services

Venezuelian government will issue 100 million coins of Petro of which 38.4 million is available for pre-sale and 44 million coins will be offered in Initial Coin Offerings (ICO) in March 2018. The rest 17.6 million coins will be retained by Venezuelan Superintendency of Currency and Related Activities (SUPCACVEN).

Petro Gold

With encouraging response to Petro, Venezuelan government is planning to launch another cryptocurrency based on gold called Petro Gold which will be backed by gold. It will be more powerful and strengthen the Petro. But Petro Gold will, be not the first cryptocurrency based on gold. Many such currencies are traded in market including one called RMG created by The Royal Mint in Britain.

Comment

The success of Petro depends a lot on how global crypto-community responds to its offer. Moreover, governments and regulators across the globe have already started warning investors against the financial and legal risks associated with digital or crypto-currencies. However, Venezuela is successful in managing digital assets, it will be able to circumvent sanctions imposed on it and it could open new ways for other sanctioned countries to be financially stable despite the curbs.

Background

Venezuela, an OPEC member has one of the largest oil reserves in the world. It has over 300 billion barrels oil reserves — largest in the world. The socialist country earns 95% of its forex from oil exports is going through one of the biggest financial crisis in its history. With new official cryptocurrency, Venezuela hopes to overcome economic blockade imposed by United States which has resulted in 99% depreciation of value of its fiat currency Bolivar.

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