Digital Currency Current Affairs - 2020

Inter-Ministerial Committee on Virtual Currencies submits Report

Inter-Ministerial Committee on Virtual Currencies headed by finance secretary Subhash Chandra Garg has submitted its report to the government. The committee set up by Centre has also proposed a draft bill ‘Banning of Cryptocurrency & Regulation of Official Digital Currency Bill, 2019’.

Background

Government had constituted an Inter-Ministerial Committee (IMC) on 2 November 2017 under the Chairmanship of Subhash Chandra Garg, Secretary of Department of Economic Affairs for studying issues related to virtual currencies and to propose specific action to be taken in this matter. Members of committee included secretary (MeiTY), Chairman of Securities and Exchange Board of India (SEBI) and Deputy Governor of Reserve Bank of India (RBI).

Key Highlights of Report

DLT Technology: Report submitted by group highlights positive aspect of distributed-ledger technology (DLT). It suggested various applications for use of DLT in India, especially in financial services. DLT-based systems for instance can be used by banks or other financial firms for processes like tracking of loan-issuance, fraud detection, claims management in insurance, collateral management as well as reconciliation systems in securities market.

Private Cryptocurrencies: Given the risks associated with private cryptocurrencies and volatility in their prices, the committee recommended banning of cryptocurrencies in India by enacting a law and imposing fines and penalties for carrying on activities related to such cryptocurrencies in India.

Key Proposals:  As virtual currencies and its underlying technology are still evolving the Group has proposed that-

Government should keep an open mind on official digital currency.

Government may establish a Standing Committee to revisit issues addressed in Report as and when required.

Way Ahead

Report and Draft Bill submitted by Committee will now be examined in consultation with all concerned Departments and Regulatory Authorities, before Central Government takes a final decision. For now draft bill has been placed in the public domain on website of Department of Economic Affairs.

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Digital currency: Aber

The central banks of the UAE and Saudi Arabia will launch a common digital currency called Aber. Aber will be used for financial settlements between the two countries through Blockchains and Distributed Ledgers technologies.

Benefits of the Digital Currency

The digital currency would be launched to explore the following benefits:

  • The digital currency would aid in studying the impact on the improvement and reduction of remittance costs and the assessments of risks.
  • Aber will establish an additional means for the central financial transfer systems of the two countries and enable banks to directly deal with each other in conducting financial remittances.

Initially, the use of the digital currency will be restricted to a limited number of banks. By studying the various technical, economic and legal requirements, the use of the digital currency would be expanded.

Digital Currency Aber relies on the use of a distributed database between the central banks and the participating banks from both sides. Digital Currency is part of the efforts to adopt new technologies like Blockchain, Artificial Intelligence, Internet of Things, etc., in line with the Fourth Industrial Revolution that is reshaping governments and corporates around the world.

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