Explanation:
The money we use (fiat currency) is a product of lending by institutions (commercial banks). What makes it credible or trustworthy is that it is backed by the state through its central bank. What makes its usage ubiquitous is the law, which establishes that our taxes can only be paid in state-issued fiat currency. Although the 'virtual currency' (or 'cryptocurrency') is intended to function as a means of payment, unlike fiat currencies, they lack a sovereign guarantee and their source of value is not quite clear. RBI had said central banks are exploring DLT (Distributed Ledger Technology) for application in improving financial market infrastructure, and considering it as a potential technological solution in implementing central bank digital currency (CBDC). A recent survey of central banks conducted by the Bank for International Settlements found that some 80 per cent of the 66 responding central banks have started projects to explore the use of CBDC in some form, and are studying its potential benefits and implications for the economy. RBI had expressed concern over other cryptocurrencies, saying they can be used for illegal activities, and pose a threat to financial stability. In April 2018, RBI banned banks and other regulated entities from supporting crypto transactions after digital currencies were used for frauds. In March 2020, the Supreme Court struck down the ban as unconstitutional. One of the reasons it gave was that cryptocurrencies, though unregulated, were not illegal in India.
Explanation:
The money we use (fiat currency) is a product of lending by institutions (commercial banks). What makes it credible or trustworthy is that it is backed by the state through its central bank. What makes its usage ubiquitous is the law, which establishes that our taxes can only be paid in state-issued fiat currency. Although the 'virtual currency' (or 'cryptocurrency') is intended to function as a means of payment, unlike fiat currencies, they lack a sovereign guarantee and their source of value is not quite clear. RBI had said central banks are exploring DLT (Distributed Ledger Technology) for application in improving financial market infrastructure, and considering it as a potential technological solution in implementing central bank digital currency (CBDC). A recent survey of central banks conducted by the Bank for International Settlements found that some 80 per cent of the 66 responding central banks have started projects to explore the use of CBDC in some form, and are studying its potential benefits and implications for the economy. RBI had expressed concern over other cryptocurrencies, saying they can be used for illegal activities, and pose a threat to financial stability. In April 2018, RBI banned banks and other regulated entities from supporting crypto transactions after digital currencies were used for frauds. In March 2020, the Supreme Court struck down the ban as unconstitutional. One of the reasons it gave was that cryptocurrencies, though unregulated, were not illegal in India.
