China to Launch Official Digital Currency | 02 May 2020

Why in News

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

Key Points

  • The digital currency of China has not been officially released but internal pilot tests are being carried out in four cities of China.
  • China is expected to officially make the sovereign digital currency available to the public later in 2020.
  • It could be considered the world’s first Central Bank Digital Currency (CBDC) if it is officially issued by state bank People’s Bank of China.
  • The total size of China’s digital currency could reach one trillion yuan ($140 billion), equivalent to about one-eighth of China’s cash.

Digital Currency

  • Digital currency is a payment method which exists only in electronic form and is not tangible.
  • Digital currency can be transferred between entities or users with the help of technology like computers, smartphones and the internet.
  • Although it is similar to physical currencies, digital money allows borderless transfer of ownership as well as instantaneous transactions.
  • Digital currency is also known as digital money and cybercash.
  • E.g. Cryptocurrency

Cryptocurrency

  • A cryptocurrency is a digital or virtual currency that uses cryptography for security.
  • Cryptocurrencies use decentralized technology to let users make secure payments and store money without the need to use their name or go through a bank.
  • They run on a distributed public ledger called blockchain, which is a record of all transactions updated and held by currency holders.
  • The most common cryptocurrencies are Bitcoin, Libra, Ethereum, Ripple, and Litecoin.

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.

Source:HT