Impact of 2017 and the Year Ahead in 2018: Views from eCurrency
The coming year is the dawn of a new era for driving India’s financial revolution and making a global impact. Digitisation should provide for equal benefit to all sectors and the people of India. It must drive trust in the system.
The year 2017 has been a monumental year for India with changes in the financial system post demonetization which removed 86% of the nation’s currency followed by a number of BHIM-enabled digital payment services. The currency fluctuation brought up India’s biggest challenge highlighting the demarcation of the banked and unbanked. As the Government embarks on its digital mission and aims to drive literacy and adaptability, there is a need for a currency that does not challenge the system or consumer; instead it needs to complement the existing infrastructure. In addition, it needs to be the currency of the masses that has legal tender value issued by the RBI, benefits of interoperability, secure from counterfeit and theft as well as ease of implementation.
A true digital fiat currency must be issued by the authority of the central bank to be sovereign legal tender under the relevant central bank laws and currency laws. Though there is a strong buzz on cryptocurrencies, it clearly is not a currency. Today banknotes and coins are issued by the Central Bank, and held and transacted by all regardless of class or social status. In order for a digital fiat currency to be an ultimate instrument of financial inclusion, it must possess the same characteristics as that of physical fiat currency. Central banks around the world are studying the possibility of issuing digital fiat currency. The RBI is among those discussing the topic. The Union Budget 2017-18 was key for the development of this space as it places high importance on improving the digital infrastructure of the country with key recommendations made in the Watal Report that clearly indicate the way forward for digital India. With looming security issues, such platforms will overcome the alarming challenges in security.
In the year ahead, we will be witness to great conversations and deliberation over the legal and regulatory implications of digital fiat currency. Innovative financial technology is being viewed as a way to enhance efficiencies in financial markets. Trading between banks and institutions is time consuming and expensive where clearing and settling trades incurs the finance industry a cost of $80 billion every year. Digital fiat currencies will echo significant advantages in this area as well. With the country driving all its efforts towards a cashless future, a secure, trusted digital currency that has been declared sovereign by the authority of the RBI will help and check duplication as well as black money. Recent reports have brought to light security issues with privately issued digital monies, thereby bringing further validity in a central bank issued digital fiat currency. The success of any country is the stability of its financial system, which should be centrally controlled and monitored. With a digital fiat currency being positioned as a legal tender, centrally issued, monitored and regulated, it is expected to drive the financial system towards a structured balance and not susceptible to issues due to the control of private players.
The coming year is the dawn of a new era for driving India’s financial revolution and making a global impact. Digitisation should provide for equal benefit to all sectors and the people of India. It must drive trust in the system. eCurrency looks forward to the coming year and making an impact on Digital India’s financial journey.
Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house
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