It is important to have an open dialogue

Cooperation is the way forward

Over the last couple of months, there have been encouraging talks about RBI adopting CBDC that they plan to introduce via a phase-wise implementation strategy. The central bank is framing considerations for the legal framework to be put into place so that the CBDC can coexist with cash and digital payment methods in India. However, still, there is no clarity on the regulatory environment of private blockchain-based cryptocurrencies.

The underlying technology is an exciting one that is relatively new and rapidly evolving. Given the rapid evolution in this field, there’s a need to engage in an active dialogue with other eco-system players such as crypto exchanges, who are more updated on the latest technology landscape and can help the regulators comprehend it better. This can be achieved through the establishment of a working group or conducting workshops/brainstorming sessions.

The crypto exchanges have the technical know-how and the required infrastructure around identity management, digital wallets, etc which can be leveraged to achieve India’s objectives. Cryptocurrency exchanges’ role can be pivotal in launching digital rupee as they have a great number of native wallet holders in India.

In the last couple of decades, there has been a lot of innovation and a surge in new business ideas in the Fintech space and this is not the first time when RBI is facing a dilemma around the new technology. There has been a lot of examples in the past where RBI has not only managed the confusion which these new technologies bring along but also evolved themselves over the period of time by bringing in supportive frameworks/regulations which allowed the newer tech to thrive and prosper.

One such exemplary example is the National Payments Corporation of India (NPCI) which was created by RBI to operate retail payments and settlement systems in India. NPCI has transformed the way India manages financial transactions. NPCI was set up with support & guidance from Reserve Bank of India (RBI) & Indian Banks Association (IBA). Initially, there were 10 promoter banks including state banks and International banks like Citibank and HSBC that helped ground the discussion in a cohesive manner towards a growth mindset.

Presently, NPCI has created a separate subsidiary to take its product to the global market. The organization is getting offers from other nations to improve its payment infrastructure. The Internationalization of RuPay and Unified Payment Interface (UPI) is the primary focus of the NPCI International Payments Limited (NIPL). Last year, RBI opened India’s payments space for private companies to foster innovation and inclusion in the payments space and expanding the scope and capacity of such services, approx. 500–600 million consumers would be using digital payments and 50–55% of all retail transactions would be digital.

The key strategies behind its success are:

  • It opted to transfer operation of retail systems outside the regulator and allowed an industry-led approach to ownership and governance, provided with strong regulator backing.
  • In the initial days, RBI supported them by providing subsidized start-up capital and the earnings are not returned to the shareholders but re-invested into the operations.
  • Adopting startup culture, NPCI has rolled out new products at the rate of more than one in a year because of following an agile product development strategy along with an open-source approach. ( iSPIRT)
  • RBI offered incentives to the banks to come together to form NPCI and the government also supported NPCI, strongly. RBI helped support banks with better core banking technologies and by bringing in supportive regulations around newer technologies.

As evident above; adopting agility, the cohesive partnership model, and being a little more open to change, brought a paradigm shift in the financial sector.

Financial inclusions and cross-border payments are complex goals and public-private partnership may be a once-in-a millennia opportunity to achieve them. The private sector could play a pivotal role in bringing the much-needed expertise in commercializing the technology around central bank digital currencies. The customer due diligence, wallet design, and currency distribution should be left to the private sector like crypto exchanges which they are best at. The central bank should continue with regulation and supervision.

Regulatory clarity and consistency are very important for innovation. In order to achieve it, open dialogue with ecosystem players is imperative. Let this moment become an opportunity to know each other and explore efficient and effective ways to collaborate.

Together, we have the capacity and capability to shape a digitally inclusive economic future that would work for every citizen of the country and can be a transformational driver for growth.

As emphasized by Christine Lagarde in one of her speeches regarding regulatory frameworks for crypto-assets

“Cooperation is key. To make things smoother — at least a bit — we need dialogue.”

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Public Policy Manager - CoinDCX

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Neha Singh

Neha Singh

Public Policy Manager - CoinDCX

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