The government has no plan to recognise Bitcoin as a currency in the country, Finance Minister Nirmala Sitharaman informed the Lok Sabha on Monday.

In response to another question, the Finance Ministry said the Reserve Bank of India has urged the Centre to amend the RBI Act, 1934 to widen the definition of bank notes to include digital currency. This will facilitate the introduction of the Central Bank of Digital Currency (CBDC).

Cryptocurrency, CBDC and the RBI Act

Asked “whether the Government has any proposal to recognise Bitcoin as a currency in the country,” Sitharaman said in written response, “No Sir.” This response comes at a time when the government is planning a Bill to regulate cryptos in India.

On the CBDC, Minister of State for Finance Pankaj Chaudhury, in a written reply, said: “The government has received a proposal from Reserve Bank of India in October, 2021 for amendment to the Reserve Bank of India Act, 1934 to enhance the scope of the definition of ‘bank note’ to include currency in digital form.”

It is believed that the RBI’s request will be incorporated in ‘The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021’, scheduled for the Winter Session.

Chaudhury said the RBI has been examining use-cases and working on a phased implementation of the CBDC with little or no disruption.

“Introduction of CBDC has the potential to provide significant benefits, such as reduced dependency on cash, higher seigniorage due to lower transaction costs, reduced settlement risk.. It could also lead to a more robust, efficient, trusted, regulated and legal tender-based payments option,” he said while admitting that there are also associated risks that need to be evaluated.

The RBI has indicated doing a pilot of the CBDC in the first quarter of FY23. With the RBI considering it for retail and international trade payments, the CBDC could have a larger impact on the financial ecosystem, say experts.

While many see CBDCs as a legalised replacement of cryptocurrencies, in reality, the CBDC could just be a digital replica of the physical cash in circulation.

RBI may pilot digital currency in Q1 of FY23