All of us were shocked to hear the news of RBI banning cryptocurrency in India. Few of us were afraid that such a promising technology would go unrecognised by the Indian Government. But after banning cryptocurrencies, the Reserve Bank of India has now formed a particular unit for the development of blockchain and artificial intelligence lead by a general manager. Even though the official announcements about the team are yet to reach you, the unit is also expected to draft rules and regulations for the cryptocurrencies and other emerging technologies.
RBI and Cryptocurrencies
In 2018 April, the Reserve Bank of India barred all the banks and financial institutions from dealing with virtual currencies. The risk associated with cryptocurrencies had led the RBI to consider this regulation. It meant that your banks would not allow you to buy cryptocurrencies to protect your money.
However, the blockchain technology is identified and has been studied for the improvements in the banking sector. Recently RBI tested a blockchain based trade application successfully.
RBI is not impressed with the non-fiat structure of cryptocurrencies, but the underlying technology is identified and being studied.
Role of the New Unit on Cryptocurrencies and Blockchain
As a regulator of financial activities of a country, RBI has to be on the top of every emerging tech to decide whether to adopt or not. In the financial sector where we are slowly changing from paper to digital, it is essential for RBI to look into cryptocurrencies and blockchain which is presumed to be the future of money transactions. In that sense, RBI is doing precisely what the formation of this unit supposes them.
The RBI has recently mentioned the plan to set up a data science laboratory with professionals from economics, econometrics, data analytics, computer science, statistics and finance background. The new unit is expected to be able to use data analytics with the aid of new technologies for predicting different RBI functions. Inflation targeting, policy enforcement and banking regulations are included in these RBI functions.
Also, despite the ban, the RBI is not completely ignoring the possibilities of cryptocurrency. A fiat digital currency named "Lakshmi coin" is in construction by the RBI. Shedding light on the regulatory framework might be another critical role of the new unit.
Central Banks Around the World
The central banks around the world agree with RBI on the fact that privately issued cryptocurrencies such as Ethereum and Bitcoin are not going to replace the traditional currencies. LIke India, a lot of the countries are working on cryptocurrency issued by the central bank of the country. The fraudulent activities associated with the technology is delaying the release of such coins. The states also have to ensure that their systems are mature enough to handle the payment systems.
All countries are going forward in this matter despite their different speeds. Unfortunately, a collaborative than an individual study on digital currencies backed by global central banks as a legal tender is yet to happen which will ease the process of cooperation in the future.