RBI's Digital Currency: Concern is from the angle of cyber security, says RBI Gov Shaktikanta Das

The Reserve Bank of India (RBI) Governor Shaktikanta Das today highlighted cyber security and digital frauds as two major areas of concern in a central bank digital currency (CBDC) universe.

"The main concern comes from the angle of cyber security and the possibility of digital frauds. So, we have to be very careful about that just as a few years ago we had a major concern was on fake Indian currency notes. Similar things can also happen when you are launching CBDC," said  Governor Das when BT asked about the unknown risks in launching CBDC in India. 

"In a CBDC universe, we have to be that much more careful with regard to ensuring cyber security and taking preventive steps to prevent any kinds of frauds because there will be attempts. We have to have robust systems and firewalls," added Das.

The RBI has already sent a proposal to the government for amending the RBI Act, 1934,  to enhance the scope of the definition of a ‘bank note’ and include currency in digital form. The new regulatory framework for digital currency would be part of the Cryptocurrency and Official Digital Currency Bill, 2021, which will be introduced in the current winter session.

In fact, the RBI has already made progress in launching the new digital currency.

"There are two areas of CBDC --wholesale and retail --where the RBI is working on. Ä lot of work has been done on the wholesale side. Some more work is be required on the retail front. Whichever gets readied first, we will release it for pilots," said Deputy Governor T. Rabi Sankar.

The RBI has listed out CBDC benefits like lesser dependency on cash, much higher seigniorage ( no printing of notes required) due to lower transaction costs, and reduced settlement risk for banks. 

Digital currency will be a legal currency issued by the RBI in a digital form. It will be backed by the government with seignorage accruing to the sovereign.  

Seignorage is a difference between the value of the currency and the cost of printing it.  In fact, the government will earn higher seignorage in a digital currency as the transaction cost ( as against printing of notes and coins ) will be much lower. 

There will also be no fluctuation in the value of the digital currency as seen in cryptocurrencies.