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Central Bank Digital Currency or CBDC is a buzzword as countries across the world, including India, are talking about launching their own digital currency. It is, however, not so easy in the absence of enabling legal support in India. In an interview with Money9, cyber law expert Pavan Duggal, lists the various factors that need to be be kept in mind while introducing it. He noted enabling legal framework is going to be crucial in ensuring it takes off seamlessly.

He also said that one of the primary risks and issues that must be considered by any government as it goes forward in the direction of coming up with a CBDC is to take appropriate steps to protect and preserve the cybersecurity of the digital ecosystem.

Edited excerpts:

Q: What is central bank digital currency? Can you elucidate?

Duggal: Typically a cryptocurrency is a decentralised currency. It is a currency that really does not require any centralised control, but because blockchain is now becoming predominant and relevant we are finding that more and more countries and certainly banks are beginning to start experimenting with the blockchain as a technology. So this concept of a central bank digital currency has emerged. It’s not the same as your normal currency. It’s far beyond.

The digital currency will help a far more seamless integration of the digital payment ecosystem in the entire cyberspace related paradigm. So to that extent, I distinctly believe that it’s a step forward. A lot of countries are still toying with the idea of how to do it, what to do and what are the possible pitfalls that they have to be careful about and what are the distinctive advantages? And the beauty is that India is just at the cutting edge of technology.

Q: What are the risks and challenges of having CBDC?

Duggal: When I look at it in the Indian context, I find that the Indian Information Technology Act 2000 is completely inadequate to deal with the issues pertaining to digital currency. The problem is that the Act itself does not give a legal sanction to digital currency. Hence it’ll require more enabling legal support and that will be the first big challenge before any government.

Another big challenge in the context of digital currency will relate to cybersecurity. Now once it is a digital currency that’s going to be backed up by the central bank people are going to take it for granted that we are secured now. But security is easier said than done. There are a lot of slips between the cup and the lip. And I see that there are a number of risks and challenges that await in the nation as they go and roll out digital currency because hackers, cybercriminals would be using all their power to go ahead and hack or breach or misuse the digital currency.

We are also likely to see other issues because digital currency issued by a digital or a central bank of a country, or would only have value to be within the territorial boundaries of that country. How will you make a digital currency valid outside your territory boundaries?

Q: How prepared are other countries to roll out their CBDCs?

Duggal: When I look at the model on the blockchain, I see that Estonia, Belarus or even Switzerland have come up with dedicated legal frameworks to promote blockchain ecosystem and blockchain-related payment. At the end of the day, we will all have to be mindful of the fact that we will have to do a lot of experimentation. We will also have to think on our feet as we go forward because cybercriminals are reading on the rings to go ahead and target these digital currencies.

Q: Is India ready for digital currency or should we wait for some time to have clarity on laws?

Duggal: It’s not a good idea to wait for the law. But it is a good idea to prepare legal ground in terms of developing a digital national currency. You will have to come up with enabling legal frameworks. So as to grant legality to this particular format. So I think what these issues will have to go and by hand. In India, RBI is working on the details pertaining to digital currency.

Q: We are reaching out to the population where the awareness is very low. So, do you think cyber fraud can be a bigger problem once digital currency rolls out?

Duggal: Once the digital currency actually rolls out. It’s going to be a far bigger problem because in India let’s learn from the experience of Jamtara, a village in the Eastern part of India, which became famous because entire villages got dedicated to cybercrime as an economic activity. COVID-19 has told us that there are a number of Jamtara that are actually mushrooming across the world, specifically in India. And we are also beginning to see how that has become a move towards making cybercrime a cottage industry.

Hence, appropriate preparation must be done now in terms of making sure that adequate cybersecurity, precautions and protections are in place and good legal frameworks are in place because digital national currency can be misused by any person sitting anywhere in the world. But how we do it is something that is going to be most significant as we move towards financial inclusion.

RBI and government will need to come up with the appropriate mechanisms to disseminate more information about the national digital currency and make it safe from potential cyber-attacks and from potential cybercriminal activities.