Central bankers everywhere are looking wide-eyed at the underlying technology that powers the cryptocurrency Bitcoin. Now with the economic uncertainty brought on by the reality of Brexit, the Reserve Bank of India is preparing by studying blockchain technology and stashing forex reserves.
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Reserve Bank of India Notes Blockchain ‘Flexibility’
The Reserve Bank of India (RBI) is India’s central banking institution, which disperses its sovereign currency (the Indian rupee) and oversees its monetary policy. According to The Times of India, the central bank is continuing its research with distributed ledger technology since it last discussed the subject back in December of 2015.
Now Deputy Governor H.R. Khan said on June 24 that RBI will be setting up a special committee that explores the use of blockchain protocol in order to reduce dependency on paper currency.
Khan spoke to an audience about the matter at a conference held at the Institute for Development and Research in Banking Technology (IDRBT). He told the press at the event:
Blockchain is one thing that has come out of Bitcoin which provides a lot of flexibility in terms of financial transactions. So, we need to study how this Blockchain technology can be used in financial transactions where the entire data systems move to some more levels.
Back in 2013, RBI warned against the use of the cryptocurrency Bitcoin and then later came to realize the technology had benefits to offer traditional financial systems. Then, in December of 2015, RBI said there was quite a bit of innovation involved with the protocol as The Times of India detailed the bank’s opinion that year saying, “With its potential to fight counterfeiting, the ‘blockchain’ is likely to bring about a major transformation in the functioning of financial markets, collateral identification (land records for instance) and payments system.”
Keeping Pace with ‘Tremendous Potential’
However, RBI did note the full potential is yet to be determined, and regulators should “keep pace with developments.” Now with the current economic turmoil on the global level, RBI is discussing blockchain importance once again. According to The Times of India, Deputy Governor Khan explains:
We have a group of officials from RBI, IDRBT and industry people which will look into this. There is a tremendous potential in Blockchain technology.
When questioned about the post-Brexit situation, Khan told reporters the impact will likely happen quickly, and the bank has systems in place to fall back on.
“We are closely monitoring,” the deputy governor explains. “Given our macro fundamentals, certainly, we will be affected by what is happening globally. But we are in a much better position to weather the storm. We are not in those earlier days of Fragile Five or Turbulent Tens.” As far as rupee volatility is concerned, the bank keeps $363 billion USD in forex reserves on standby.
The pursuit of better financial technology could serve as additional safeguards and help the institution operate more transparently, fluidly, and in a more cost-effective manner. The bank seems to believe that applying blockchain technology could assist various aspects of the Indian banking system. Additionally, the bank is confident in its reserves and doesn’t seem threatened by the Brexit or global economic woes at the moment.
What do you think about the Reserve Bank of India looking into blockchain tech to help fend off economic turbulence? Let us know in the comments below.
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