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Addressing security issues in e-money

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November 06, 2017

What is the issue?

  • Reserve bank of India is planning to issue digital rupee.
  • In this context, RBI needs to address privacy and transparency concerns involved in digital currency.

What is Digital India rupee?

  • Digital Indian rupee is a sovereign digital fiat currency with a government determined value, which is about to be issued by RBI.
  • It is a bearer instrument just like paper notes and coins.
  • It is protected with layered hardware, software, protocol security and currency laws.
  • Digital payments conducted with the digital India rupee are settled and finalised by cash at the point of exchange.
  • This will address the issues of monetary supply, digital counterfeit, convertibility and acceptability.
  • A digital legal tender gives the authority the visibility of the pattern and behaviour of the digital currency in circulation.
  • The persons transacting or the contents of the transaction are not disclosed unless there is adequate suspicion in the transaction.

What are the challenges with e-money?

  • The present forms of e-money are liabilities issued by the service providers.
  • With private e-money service providers fielding methods, the questions of regulation, accountability and a universal approach become a large issue.
  • Convertibility of these private e-monies to legal tender rupee is subject to the financial management and operational soundness of the service providers.
  • Acceptability of e-money between different schemes is not a given, and is subject to the mutual agreements between the service providers.
  • Disruptions, such as fraud and errors, can lead to the loss of funds that either the consumers or providers have to compensate.
  • There is a lot of talk around personal information and privacy protection in our digital lives these days.
  • Governments are extremely concerned with digital means being exploited for illicit activities like money laundering and terrorists’ funding.

What are the advantages of digital India rupee?

  • With the use of digital India rupee through existing e-money services, it will not require any expensive infrastructure or transformative technologies to enable its use.
  • There is no need for subsequent settlements between the ledgers of the e-money service providers, and other intermediaries.
  • The value of the currency is backed by the credit worthiness, assets and productivity of the nation.
  • It will accelerate the shift from an informal to formal economy, eliminating ‘negative elements’ from the financial system.
  • This will also remove the labour intensive factors and financial risk costs associated with reconciliations and settlements.

 

Source: BusinessLine

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