The Reserve Bank of India (RBI) says it’s time to embrace blockchain and adopt a digital currency for the country, according to a new report.
The RBI’s research unit released a whitepaper last week advocating for the adoption of a blockchain-based digital currency after concluding that technology in this area has “matured enough” to be put to use. The RBI’s Institute for Development & Research in Banking Technology also concluded that blockchain and digital currency innovation would be a proactive push forward in India’s quest to digitize the rupee.
“Blockchain holds the potential for all participants in a business network to share a system of records, which will provide consensus, provenance, immutability and finality around the transfer of assets within the business network,” the group concluded in its whitepaper, “Applications of Blockchain Technology to Banking and Financial Sector in India.”
Cost savings, mitigation of forex volatility, faster settlement, greater efficiency and reduced processing time are all some of the potential benefits of blockchain, the group added. But adopting a digital currency to operate across blockchain could offer even more benefits to India.
“From a technological perspective, we feel that BCT [blockchain technology] has matured enough that there is sufficient awareness among the stakeholders, which makes this an appropriate time for initiating suitable efforts towards digitizing the Indian rupee through BCT,” the paper stated.
Digitizing the rupee and landing the currency on blockchain would be a massive undertaking and one of the world’s largest shows of support for the innovation. But, reports said, it’s not that surprising that India would be so supportive of such a move.
India surprised consumers and businesses alike with its sudden decision to demonetize larger denominations of its paper currency. The effort, announced by Prime Minister Narendra Modi in November, aimed to reduce fraud and money laundering. But since the move, analysts have noted that demonetization is part of India’s broader efforts to migrate towards a cashless society.
Recent analysis from Bloomberg suggests additional efforts by the nation to encourage digital payments are succeeding. The Unified Payments Interface, an interbank system to facilitate streamlined payment transfers, saw more transactions pass through in the first nine days of December last year than it did the entire month of November. Other assessments of the impact of demonetization include predictions that B2B payments will turn digital as SMEs can no longer rely on high-value notes to pay their suppliers.
The adoption of a digital currency is likely years away for India, but the RBI’s embrace of blockchain technology could lead to more immediate impacts on the national economy and the way payments are made. In its paper, the institute highlighted trade finance, letters of credit and smart contracts as two particularly promising use cases for blockchain. The ability for distributed ledgers to include more data alongside a payment could similarly have major impacts for KYC compliance, automatic reconciliation and other key uses for that information by businesses.
Industry stakeholders seem to agree with the RBI’s conclusions.
In an interview with The CoinTelegraph this week, Akash Gaurav, CEO of India IT firm Auxesis Group, praised the paper and India’s forward-thinking position on the use of blockchain.
“For a developing country like India, it’s important for the government as well to come up with a solution which would put a brake on issues related to counterfeit and corruption to make the system more transparent and secure,” he said in the interview. “These systems can be enabled using such distributed ledger technologies as blockchain.”
But considering the widespread backlash against Prime Minister Modi’s demonetization efforts — with some critics highlighting the threats the move generated against banks and businesses — any government overhaul to adopt blockchain could see similar reactions.