RBI explores feasibility of launching ‘fiat’ digital currency

The RBI has clamped down on virtual currencies, including Bitcoin, directing all entities regulated by the central bank — mainly banks, finance companies and wallets — not to deal with or provide services to any individual or business entities dealing with or settling virtual currencies, joining the global crackdown on trading of virtual coins.

The  Reserve Bank of India crackdown came a day after Amit Bhardwaj, the bitcoin entrepreneur who allegedly cheated over 8,000 people to the tune of Rs 2,000 crore was arrested from the Delhi Airport on Wednesday. “Regulated entities which already provide such services shall exit the relationship within a specified time. A circular in this regard is being issued separately,” the Reserve Bank of India said.

Simultaneously, the RBI has constituted an inter-departmental group to study and provide guidance on the feasibility to introduce a central bank digital currency. The report will be submitted by end-June 2018, RBI said.

“Rapid changes in the landscape of the payments industry along with factors such as the emergence of private digital tokens and the rising costs of managing fiat paper/metallic money have led central banks around the world to explore the option of introducing ‘fiat’ digital currencies,” the RBI said. Fiat currency is the currency that a government has declared to be legal tender. However, cryptocurrency, or virtual currency like Bitcoin, is not legal tender and not backed by a government.

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