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India’s national blockchain strategy calls for a state-backed digital Rupee

Image by Adam Jones from Flickr

Wed, 29 Jan 2020, 09:10 am UTC

The National Institute for Smart Governance (NISG), a non-profit company incorporated by the Indian government that provides e-governance consulting services to central and state governments, has published a draft document on the "National Strategy on Blockchain" on Dec. 30.

The NISG was entrusted with the task to prepare the draft on national blockchain strategy in July 2019 by the National e-Governance Division (NeGD).

According to the draft, the NISG said that the national blockchain strategy should be based on four key principles – technology neutrality; policy and regulatory framework at national level; investment is research, human capital and supportive regulatory framework; and capacity development in government.

It has recommended encouraging innovation and experimentation by private sector, adopting a light-touch regulatory approach at the initial stage, introducing clear policy and regulation before enforcement, establishing a body/office to coordinate blockchain strategy, developing a comprehensive understanding of the technology by policymakers, among other things.

State-backed Digital Rupee

The draft strongly calls upon the government and the Reserve Bank of India, the country's central bank, to come up with a central bank digital currency (CBDC) which it called Central Bank Digital INR (CBDR) or a state-backed digital Rupee.

“As an alternative to Public Blockchains that operate with native cryptocurrency, like Ethereum, it is strongly recommended that Government of India along with RBI come out with a Central Bank Digital INR (CBDR) administered over a Public Permissioned Blockchain that processes transactions through a Turing Complete Virtual Machine allowing decentralised applications to run on its platform,” the draft read.

There are already several countries in the world experimenting CBDC. The NISG noted that this marks a "transitory step to the ultimate eventuality of a fully digitalised currency" with the additional security measure offered by blockchain technology.

“The advantage of offering CBDR is that it can allow the Indian Blockchain developers and entrepreneurs to create and run decentralised applications like in the case of the open source Permissionless Blockchains like Ethereum, EOS etc., while benefiting from regulatory oversight and corresponding protection.”

Meanwhile, the RBI said that it did not ban cryptocurrencies but only ringfenced banks from it due to the risks associated with trading virtual assets.

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