China’s central bank digital currency

Recently, China has started testing its official digital currency which is unofficially called “Digital Currency Electronic Payment, DC/EP”.

DC/EP

• According to reports, China’s central bank has been conducting research on its digital currency since 2014.
• This Chinese digital currency is very similar to Bitcoin and Facebook’s digital currency Libra.
• Like other digital currencies, this new currency of China can also be stored in Digital Wallet.
• The most prominent difference between the new digital currency of China and other currently existing digital currencies is that the currency of China will be controlled by the Chinese government and its central bank, but the current digital currencies are not controlled by any bank or government .

e- RMB:

• The digital currency – known as the e-RMB – “will not be issued in large amounts” for public use in the short term, and the digital currency in circulation would “not lead to an inflation surge”.
• Initially it will be tested in three major cities of Shenzhen, Suzhou and Chengdu.
• People’s Bank of China (PBOC), the country’s central bank, will be the sole issuer of the digital yuan, initially offering the digital money to commercial banks and other operators.
• Public would be able to convert money in their bank accounts to the digital version and make deposits via electronic wallets.

India’s Stand on Digital Currency

• The Reserve Bank of India (RBI) had banned cryptocurrencies in 2018.
• RBI had considered cryptocurrencies as a poor unit of account and also demonstrated by their frequent and high fluctuation in value.
• RBI also stated that it pose several risks, including anti-money laundering and terrorism financing concerns (AML/CFT) for the state and liquidity, credit, and operational risks for users.
• It had also said that it would seriously consider developing a sovereign digital currency when the time is appropriate
• Subsequently, the Supreme Court has struck down a circular of the RBI, which bans financial institutions from enabling deals in digital or cryptocurrencies.
• The ban was challenged by the Internet & Mobile Association of India (IAMA) sighting that dealing and trading in cryptocurrency was a legitimate business activity and that the RBI did not have jurisdiction over it as these assets could be classified as commodities rather than currency

UPSC