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Hiding one's financial transactions will become very difficult with CBDC, experts suggest
With cryptocurrencies in constant buzz, citizens are curious to know the Indian government’s stand on digital currency. Experts believe the Reserve Bank of India’s (RBI’s) plan to introduce digital rupee could reduce bank frauds and bring greater transparency to the financial system and lending process, Mint reported.
According to RBI’s annual report released in August 2020, banking frauds in the country rose to 159% including misappropriation of as much as Rs 1.85 lakh crore in 2019-20. This is 2.5 times higher than the previous year. Digital currency is expected to bring down the level of fraudulent activities but it can definitely not eliminate it altogether.
“In spite of having online banking, UPI (United Payments Interface) or RTGS (real-time gross settlement) has not triggered a behavioral change in people, because the system is not capable of tracking the transactions. Today electronic payments are nothing but a digitized version of your paper currency. Nothing prevents a person to transfer money in electronic format and then convert it into cash and hide it,” Rajesh Dhuddu, blockchain and cybersecurity expert from Tech Mahindra, was quoted in the report.
Experts also believe the creation of Central Bank Digital Currency (CBDC) will take away the bank’s responsibility of safeguarding our money as it is digitally available 0n a ledger which makes it unforgeable. This will bring a great deal of transparency into the system. Hiding one’s financial transactions will become very difficult with CBDC, experts suggest.
Since CBDC is still at a nascent stage, there is no clarity how it would function.
“In a way, digital currency is already there. When you transfer through NEFT digital currency is already there. CBDC will add another element to it and can be used further effectively. Moreover, CBDC might impact the demand for private sector wallets. The idea has to be conceptualised first as it is still under discussion,” R Gandhi, former deputy governor of Reserve Bank of India (RBI) told Money9.
At present several countries are exploring CBDC with their own approach. It is not clear yet whether blockchain technology, the underlying technology of bitcoin, will be their basis. But what sets CBDC apart from cryptocurrencies is that it is widely meant to be used as a new payment technology for lowering costs and increasing efficiency.
“Currently, Section 4 of The IT Act has given a legal sanction for electronic record. Now the question is when electronic record gets converted into digital currency. Till now we only have paper currency. A legal framework for digital currency is needed. We have to wait and watch as cybersecurity parameters are not cleared. CBDC will take the application of blockchain to the next level,” Pavan Duggal, advocate, Supreme Court of India and founder Pavan Duggal Associates told Money9.