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The Reserve bank of India (RBI) has begun an inter-departmental group which received authorization to analyze the probability of issuing a central bank digital currency - the CBDC would be rupee-backed.

The already established group‘s focus was expanded in RBI‘s annual report for 2017-18. The need for digital currency is directly related to the enormous costs of printing paper notes and coins. Economic Times‘ statistics show that the price exceeds $89 million or 6.3 billion rupees for 2018.

According to the Reserve Bank of India, the number of banking institutions seeking opportunity to explore and implement fiat digital currencies is increasing.  Private sectors and fast developments in the financial and technology industry are also important factors for consideration.

Mahesh Makhija, a representative of EY India, believes the idea could be developed.  It could potentially be helpful, but counterfeiting issues need to be discussed.  In addition, Reserve Bank is also interested in applying distributed ledger technology (DLT). It would come in handy for payments, clearing, and settlement processes.

The report states that at present cryptocurrencies do not pose any risks, but the bank prefers to be wary because cryptos can inflate the payment and settlement system and reach the transmission of monetary policy.

Reserve Bank of India will cooperate with the government and global regulators to reduce the difficulties encountered in cryptocurrencies.  It will also watch crypto trading, as when it shifts from exchanges to peer-to-peer, it could involve increased use of cash.

The migration of exchange markets to dark pools and offshore locations could lead to concerns on Anti Money Laundering and taxation issues.

In July 5 RBI made a questionable ban on bank dealings with cryptocurrency-related businesses. Because of that, exchanges in India have stopped fiat withdrawals and are thinking of converting to a peer-to-peer platform to avoid crypto-fiat conversion.

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