Policy 4.0 CEO Explains Indian Central Bank (CBDC) Digital Currency And How It Is Different From Crypto

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Central Bank Digital Currency (CBDC) is a concept explored by China, Sweden, EU countries, and various other big savings in recent years.

A CBDC is the virtual form of a government fiat currency, and is issued and regulated by local authorities. It is run on a digital ledger system, which may or may not be blockchain-based.

In India, the Reserve Bank of India (RBI) has played with the concept and is looking for a phased implementation for CBDCs over the next year.

“Money is evolving and we are now seeing the concept of digital currency emerging from the crypto revolution. There is now a fiat version of digital currency, which is sovereign issued and legal tender. It’s called CBDC, ”says Tanvi Ratna, founder and CEO of Policy 4.0, a digital currency think tank, in an interaction with Blockchain History.

In fact, crypto has long aspired to serve as a digital currency, but it is increasingly seen as assets for investment Where tokens for making transactions on blockchains.

CBDCs, on the other hand, are intended to be used as digital currency. For example, the digital currency equivalent of INR can be used as legal tender to make payments, and transactions will be recorded on a digital ledger.

Current Indian scenario

Although China has been a pioneer in CBDC research and India has yet to gain momentum in this space, the local payment infrastructure is robust, highly developed, and is a big advantage in India’s future CBDC plans.

“Since 2019, the government has been against “Private cryptocurrency” used as legal tender. The finance ministry has supported the centrally issued digital currency, but momentum has only picked up since last year, ”Tanvi said.

The government is also working on a bill that aims to define, compartmentalize and regulate cryptographic tokens depending on their nature and use cases. However, there is still debate about the impact of India’s CBDC plans on how it treats and regulates crypto.

“There are prospects in the political circle that the CBDCs will crowd out crypto or become a full alternative to crypto. But crypto, which is inherently decentralized, has moved away from a simple payment system and has become a staple of the Web 3.0 infrastructure. This is something that CBDCs, which are issued centrally, can never do, ”says Tanvi.

Crypto vs. CBDC

Over the past few months, developer communities have integrated crypto tokens into key components of decentralized gaming, social media, and marketplace applications.

For example, blockchain-based games like Decentraland Where Infinite Axis, or NFT marketplaces like OpenSea are powered by the native crypto of the blockchains on which these applications run.

An Indian CBDC, on the other hand, can be used to programmable payments between different parts, faster cross-border remittances, retail transactions, and maybe even offline payments via secure physical wallets.

“The CBDC is not as disruptive as crypto already is. But when the CBDCs enter the scene, they will be adopted much faster and have various use cases because they are backed by all the might of the state. It’s fundamentally different from crypto, which needs to gain traction and users organically, ”says Tanvi.

The path to follow

As the government experiments with CBDCs, the local blockchain and crypto industry remains optimistic about a regulatory framework conducive to innovation in distributed ledger technology.

Some Indian entrepreneurs have already flown to Singapore, Dubai, or other crypto-friendly countries to set up their businesses there, so policymakers see an urgent need to prevent brain drain and ensure growth through innovation in digital currencies.

“A regulatory sandbox for blockchain innovation that can be turned into a licensed framework and helps government manage risk is part of the solution. This is an obvious regulatory solution to give players the sandbox option and operate with the knowledge of the authorities. However, sometimes we tend to over-regulate, which can be dangerous in a rapidly changing segment, ”explains Tanvi.

Edited by Saheli Sen Gupta


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