The Reserve Bank of India (RBI) is examining the feasibility of a government-backed digital currency — or fiat cryptocurrency — even as peer-to-peer virtual currencies like bitcoin remain unregulated in the country.
RBI executive director Sudrashan Sen said an internal group is exploring the possibility of a fiat cryptocurrency that can be issued by the central bank. On the other hand, the RBI is not comfortable with non-fiat cryptocurrencies like bitcoin, he said. “As regards non-fiat cryptocurrencies, I think we are not comfortable,” Sen said.
Elaborating on what is a non-fiat cryptocurrency, Sen said: “Bitcoins for example. That’s a private cryptocurrency.” The fiat cryptocurrency is a digital currency which will be issued by RBI in place of the physical one at present, he said. A fiat currency is one that a government has declared to be legal tender, but it is not backed by any physical commodity. “Right now, we have a group of people who are looking at fiat cryptocurrencies. Something that is an alternative to the Indian rupee, so to speak. We are looking at that closely,” Sen said.
Currently, Bitcoin is the most popular digital currency while others include litecoin, peercoin, namecoin, ether and primecoin. These are mostly used for peer-to-peer transfers and are accepted in a few countries as payments. Regulators globally are not comfortable with them.
In February 2017, the RBI had said that it has not authorised or licensed any company to operate in cryptocurrency. “As such, any user, holder, investor, trader, etc. dealing with virtual currencies will be doing so at their own risk,” the regulator had said. The RBI has cautioned the users of virtual currencies about the potential financial, operational, legal, customer protection and security related risks that they are exposing themselves to.