China to Launch Official Digital Currency | 02 May 2020

Recently, China has started testing its official digital currency which is unofficially called “Digital Currency Electronic Payment, DC/EP”.

The digital currency of China has not been officially released but internal pilot tests are being carried out in four cities of China.
China is expected to officially make the sovereign digital currency available to the public later in 2020.
It could be considered the world’s first Central Bank Digital Currency (CBDC) if it is officially issued by state bank People’s Bank of China.
The total size of China’s digital currency could reach one trillion yuan ($140 billion), equivalent to about one-eighth of China’s cash.

Digital currency is a payment method which exists only in electronic form and is not tangible.
Digital currency can be transferred between entities or users with the help of technology like computers, smartphones and the internet.
Although it is similar to physical currencies, digital money allows borderless transfer of ownership as well as instantaneous transactions.
Digital currency is also known as digital money and cybercash.
E.g. Cryptocurrency

A cryptocurrency is a digital or virtual currency that uses cryptography for security.
Cryptocurrencies use decentralized technology to let users make secure payments and store money without the need to use their name or go through a bank.
They run on a distributed public ledger called blockchain, which is a record of all transactions updated and held by currency holders.
The most common cryptocurrencies are Bitcoin, Libra, Ethereum, Ripple, and Litecoin.

India’s Stand on Digital Currency

The Reserve Bank of India (RBI) had banned cryptocurrencies in 2018.
- RBI had considered cryptocurrencies as a poor unit of account and also demonstrated by their frequent and high fluctuation in value.
- RBI also stated that it pose several risks, including anti-money laundering and terrorism financing concerns (AML/CFT) for the state and liquidity, credit, and operational risks for users.
- It had also said that it would seriously consider developing a sovereign digital currency when the time is appropriate
Subsequently, the Supreme Court has struck down a circular of the RBI, which bans financial institutions from enabling deals in digital or cryptocurrencies.
- The ban was challenged by the Internet & Mobile Association of India (IAMA) sighting that dealing and trading in cryptocurrency was a legitimate business activity and that the RBI did not have jurisdiction over it as these assets could be classified as commodities rather than currency.