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Time for a Blockchain Digital Currency, Says Indian Central Bank’s Research Arm

Last Updated March 4, 2021 4:53 PM
Samburaj Das
Last Updated March 4, 2021 4:53 PM

In a significant endorsement of blockchain technology, bitcoin’s underlying innovation, the research arm of the Reserve Bank of India (RBI) – India’s central bank – has tested blockchain solutions for core banking processes in the country. More notably, researchers have determined that blockchain technology has “matured enough” to be the core technology to support the digitization of India’s fiat currency, the rupee.

Established by the central bank, the Institute for Development & Research in Banking Technology (IDRBT) is the research arm of the RBI and the foremost banking research institute in the country.

With a sweeping white paper  [PDF] titled “Applications of Blockchain Technology to Banking and Financial Sector in India”, the IDRBT deems blockchain technology (referred to as BCT) a disruptive innovation that it has been studying for nearly two years, with a small team or researchers.

Academicians, organizations, banks and technology partners involved in the blockchain industry were consulted over a workshop. A blockchain proof-of-concept (PoC) was developed and implemented in a trade finance application involving regulators and banks. Results of which, have been “quite encouraging, giving comfort and confidence in the implementability of BCT”, the research institute’s director Dr. A.S. Ramasastri revealed.

With the research and the results of said blockchain experiment, particularly in banking and finance, the research institute boldly claims:

Having had a good understanding of the various aspects around the blockchain technology including – the sound basis underlying the technology, the advantages to be had by its adoption,the variety of its applications that are being explored around the globe, security, privacy and scalability concerns and potential countermeasures, we recommend that the time is ripe for its adoption in India.

Bitcoin and an Indian Digital Currency

Bitcoin sees plenty of mentions and an explanation in the whitepaper, with the IDRBT stating that blockchain technology is best known for “its groundbreaking application in the modern cryptocurrency Bitcoin, and more so because of the disruptive innovations it promises.”

Described as blockchain’s “groundbreaking application”, bitcoin is mentioned and explained in the whitepaper, which also recommends a blockchain-based digital currency.

India is notably under the global spotlight for the controversial and unprecedented demonetization run enforced by the government in November. Since then, electronic payments have gained prominence as the country continues to struggle, strapped for cash. The white paper points toward efforts by central banks around the world to move toward a cashless society, an unexpected reality affecting millions of everyday Indians.

As the country sees a number of digital banking campaigns that encourage cashless transactions, the IDRBT sees blockchain technology as the solution for digitizing India’s fiat currency, the rupee.

An excerpt from the whitepaper read:

From a technological perspective, we feel that BCT has matured enough and there is sufficient awareness among the stakeholders which makes this an appropriate time for initiating suitable efforts towards digitizing the Indian rupee through BCT.

The Blockchain PoC

The focus, however, puts the spotlight on new blockchain technologies such as Smart Contracts (Ethereum is also mentioned in the white paper) that have been put to use in its PoC.

The PoC used the Linux Foundation-led Hyperledger Project’s open-source blockchain code, with Hyperledger Fabric 0.6.1 running an Ubuntu operating system as the software. The PoC blockchain simulated five banks as well as a regulated clearing authority for two use cases with domestic trade finance with a letter of credit and ‘Enhanced Information Payment’. The latter swathe use-case of providing data associated with a payment (payslips, contracts, invoices etc.,) shared on a ledger.

Participants in the distributed ledger included the IDRBT as coordinator; the National Payments Corporation of India (NCPI) the platform that ties in all retail payment systems in the country, as overseer; a number of banks including CitiBank, Deutsche Bank and prominent regional banks HDFC, SBI and PNB; and MonetaGo, a blockchain services firm implementing the platform.

Note: A detailed summary of the blockchain whitepaper will follow. 

Images from Shutterstock.