Virtual Currencies Current Affairs
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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.
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.
The Union government has constituted a time-bound inter-disciplinary committee to come up with an action plan for dealing with virtual currencies so as to fix the regulatory gaps in the existing framework governing virtual currencies. The committee is required to submit its report within three months.
The circulation of virtual currencies, of late, has become a cause of concern. With respect to the virtual currencies, Reserve Bank of India (RBI) has also cautioned the users, holders and traders of Virtual currencies about the potential financial, operational, legal, customer protection and security related risks through press releases in December 2013 and February 2017.
Virtual Currencies, also called as digital/crypto-currencies, are a type of unregulated digital money that is neither issued by a central bank/public authority, nor is necessarily attached to a fiat currency, but is used and accepted among the members of a specific virtual community. They are capable of being transferred, stored or traded electronically. The examples of virtual currencies are Bitcoin, Litecoin, Darkcoin, Peercoin, Dogecoin, Primecoin etc.
The nine-member inter-disciplinary committee will be chaired by Dinesh Sharma, special secretary in the economic affairs department. The committee will also have representatives from the Department of Economic Affairs, Department of Financial Services, Department of Revenue, Ministry of Home Affairs, IT ministry, Reserve Bank of India, NITI Aayog and State Bank of India.
The committee is mandated to:
- Take stock of the current status of Virtual Currencies both in India and globally;
- Examine the present global regulatory and legal structures governing Virtual Currencies;
- Suggest measures for tackling the issues related to Virtual Currencies including issues like consumer protection, money laundering etc;
- Examine other relevant issues related to Virtual Currencies.