Last week, China announced that it would be piloting its digital currency in four cities and, then, would be expanding it across the country, targeting trade payments. While this makes China the first country formalising digital currency—Bitcoin alternatives have existed for long now—it also sounds the bugle for other central banks to join the race.
Although digital payments have increasingly become popular over the last few years, with services like wallets and Apple Pay, countries have been shy of launching digital versions of their currency as there have been concerns regarding the security architecture. China can prove to be a test case for many economies. Besides, it can also mean that the dependence on the US dollar decreases. A digital currency would mean complete convertibility for accepted currencies.
So, an Indian importer may be able to pay a Chinese exporter in renminbi, purchasing it from Chinese central bank in, say, rupees. But, this would mean that the central bank will have to accept rupees for conversions. While some banks may be ready to do this, not all currencies will become acceptable. More important, though, would be the reduction in transaction costs, as blockchain would remove intermediaries and make transactions faster.
India may not have a currency of its own, but RBI, through its research arm IDRBT, has been contemplating on an India Coin. Once China is successful, India also needs to run its own tests. This will also mean huge support for blockchain, which has increasingly been used in areas such as land record modernisation. Research in the field can help the country overcome problems like the interaction of two different blockchains, which will further digitalisation.