The federal reserve should begin experimenting with a virtual currency.

When was the last time you made a payment with dollar bills?

Some people still prefer to use cash, perhaps because they like the tactile nature of physical currency or because it provides confidentiality in transactions. But digital payments, made with the swipe of a card or a few taps on a cellphone, are fast&nbsp;becoming the norm.

To keep their money relevant, many central banks are experimenting with digital versions of their currencies. These currencies are virtual, like Bitcoin; but unlike Bitcoin, which is a private enterprise, they are issued by the state and function much like traditional currencies. The idea is for central banks to introduce these digital currencies in limited circulation — to exist alongside cash as just another monetary option — and then to broaden their circulation over time, as they gain in popularity and cash fades away.

Also read |&nbsp;<a href="https://www.wionews.com/opinions-blogs/the-race-for-national-digital-currency-is-gaining-momentum-is-india-lagging-behind-299893">The race for national digital currency is gaining momentum, is India lagging behind?</a>

China,&nbsp;Japan&nbsp;and&nbsp;Sweden&nbsp;have begun trials of central bank digital currency. The&nbsp;Bank of England&nbsp;and the&nbsp;European Central Bank&nbsp;are preparing their own trials.&nbsp;The Bahamas&nbsp;has already rolled out the world’s first official digital currency.

The US&nbsp;Federal Reserve, by contrast, has largely stayed on the sidelines. This could be a lost opportunity. The United States should develop a digital dollar, not because of what other countries are doing, but because the benefits of a digital currency far outweigh the costs.

One benefit is security. Cash is vulnerable to loss and theft, a problem for both individuals and businesses, whereas digital currencies are relatively secure. Electronic hacking does pose a risk, but one that can be managed with new technologies. (As it happens, offshoots of Bitcoin’s technology&nbsp;could prove helpful&nbsp;in increasing security.)

Also read |&nbsp;<a href="https://www.wionews.com/world/crypto-mining-how-does-digital-currency-manufacturing-affect-environment-393162">Crypto mining: How does digital currency manufacturing affect environment?</a>

Digital currencies also benefit the poor and “unbanked.” It is hard to get a credit card if you don’t have much money, and banks charge fees for low-balance accounts that can make them prohibitively expensive. But a digital dollar would give everyone, including the poor, access to a digital payment system and a portal for basic banking services. Each individual or household could have a fee-free, noninterest-bearing account with the Federal Reserve, linked to a cellphone app for making payments. (About 97 percent of American adults&nbsp;have a cellphone or smartphone.)

To see how this might help, consider the payments that the US&nbsp;government made to households as part of the coronavirus stimulus packages. Millions of low-income households without bank accounts or direct deposit information on file with the Internal Revenue Service&nbsp;experienced complications or delays&nbsp;in getting those payments. Checks and debit cards mailed to many of them were delayed or lost, and&nbsp;scammers&nbsp;found ways to intercept payments. Central-bank accounts could have reduced fraud and made administering stimulus payments easier, faster and more secure.

A central-bank digital currency can also be a useful policy tool. Typically, if the Federal Reserve wants to stimulate consumption and investment, it can cut interest rates and make cheap credit available. But if the economy is cratering and the Fed has already cut the short-term interest rate it controls to near zero, its options are limited. If cash were replaced with a digital dollar, however, the Fed could impose a negative interest rate by gradually shrinking the electronic balances in everyone’s digital currency accounts, creating an incentive for consumers to spend and for companies to invest.

Also read |&nbsp;<a href="https://www.wionews.com/world/chinese-banks-promoting-digital-currency-posing-threat-to-alipay-wechat-duopoly-380452">Chinese banks promoting digital currency, posing threat to Alipay, WeChat duopoly</a>

A digital dollar would also hinder illegal activities that rely on anonymous cash transactions, such as drug dealing, money laundering and terrorism financing. It would bring “off the books” economic activity out of the shadows and into the formal economy, increasing tax revenues. Small businesses would benefit from lower transaction costs, since people would use credit cards less often, and they would avoid the hassles of handling cash.

To be sure, there are potential risks to central-bank digital currencies, and any responsible plan should prepare for them. For example, a digital dollar would pose a danger to the banking system. What if households were to move their money out of regular bank accounts and into central-bank accounts, perceiving them as safer, even if they pay no interest? The central bank could find itself in the undesirable position of having to allocate credit, deciding which sectors and businesses deserve loans.

But this risk can be managed. Commercial banks could vet customers and maintain the central-bank digital currency accounts along with their own interest-bearing deposit accounts. The digital currency accounts might not directly help banks earn profits, but they would attract customers who could then be offered savings or loan products. (To help protect commercial banks, limits can also be placed on the amount of money stored in central-bank accounts,&nbsp;as the Bahamas has done.) A central bank digital currency could be designed for use across different payment platforms, promoting private-sector competition and encouraging innovations that make electronic payments cheaper, quicker and more secure.

Also read |&nbsp;<a href="https://www.wionews.com/science-tech/digital-currency-bitcoin-hits-record-high-now-valued-over-1700-15423">Digital currency Bitcoin hits record high; now valued over $1700</a>

Another concern is the&nbsp;loss of privacy&nbsp;that central-bank digital currencies entail. Even with protections in place to ensure confidentiality, no central bank would forgo the ability to audit and trace transactions. A digital dollar could threaten what remains of anonymity and privacy in commercial transactions — a reminder that adopting a digital dollar is not just an economic but also a social decision.

The end of cash is on the horizon, and it will have far-reaching effects on the economy, finance and society more broadly. With proper preparation and open discussion, we should embrace the advent of a digital dollar.

The federal reserve should begin experimenting with a virtual currency. When was the last time you made a payment with dollar bills? Some people still prefer to use cash, perhaps because they like the tactile nature of physical currency or because it provides confidentiality in transactions.

The federal reserve should begin experimenting with a virtual currency. When was the last time you made a payment with dollar bills? Some people still prefer to use cash, perhaps because they like the tactile nature of physical currency or because it provides confidentiality in transactions. But digital payments, made with the swipe of a card or a few taps on a cellphone, are fast becoming the norm. To keep their money relevant, many central banks are experimenting with digital versions of their currencies. These currencies are virtual, like Bitcoin; but unlike Bitcoin, which is a private enterprise, they are issued by the state and function much like traditional currencies. The idea is for central banks to introduce these digital currencies in limited circulation — to exist alongside cash as just another monetary option — and then to broaden their circulation over time, as they gain in popularity and cash fades away. Also read | The race for national digital currency is gaining momentum, is India lagging behind? China, Japan and Sweden have begun trials of central bank digital currency. The Bank of England and the European Central Bank are preparing their own trials. The Bahamas has already rolled out the world’s first official digital currency. The US Federal Reserve, by contrast, has largely stayed on the sidelines. This could be a lost opportunity. The United States should develop a digital dollar, not because of what other countries are doing, but because the benefits of a digital currency far outweigh the costs. One benefit is security. Cash is vulnerable to loss and theft, a problem for both individuals and businesses, whereas digital currencies are relatively secure. Electronic hacking does pose a risk, but one that can be managed with new technologies. (As it happens, offshoots of Bitcoin’s technology could prove helpful in increasing security.) Also read | Crypto mining: How does digital currency manufacturing affect environment? Digital currencies also benefit the poor and “unbanked.” It is hard to get a credit card if you don’t have much money, and banks charge fees for low-balance accounts that can make them prohibitively expensive. But a digital dollar would give everyone, including the poor, access to a digital payment system and a portal for basic banking services. Each individual or household could have a fee-free, noninterest-bearing account with the Federal Reserve, linked to a cellphone app for making payments. (About 97 percent of American adults have a cellphone or smartphone.) To see how this might help, consider the payments that the US government made to households as part of the coronavirus stimulus packages. Millions of low-income households without bank accounts or direct deposit information on file with the Internal Revenue Service experienced complications or delays in getting those payments. Checks and debit cards mailed to many of them were delayed or lost, and scammers found ways to intercept payments. Central-bank accounts could have reduced fraud and made administering stimulus payments easier, faster and more secure. A central-bank digital currency can also be a useful policy tool. Typically, if the Federal Reserve wants to stimulate consumption and investment, it can cut interest rates and make cheap credit available. But if the economy is cratering and the Fed has already cut the short-term interest rate it controls to near zero, its options are limited. If cash were replaced with a digital dollar, however, the Fed could impose a negative interest rate by gradually shrinking the electronic balances in everyone’s digital currency accounts, creating an incentive for consumers to spend and for companies to invest. Also read | Chinese banks promoting digital currency, posing threat to Alipay, WeChat duopoly A digital dollar would also hinder illegal activities that rely on anonymous cash transactions, such as drug dealing, money laundering and terrorism financing. It would bring “off the books” economic activity out of the shadows and into the formal economy, increasing tax revenues. Small businesses would benefit from lower transaction costs, since people would use credit cards less often, and they would avoid the hassles of handling cash. To be sure, there are potential risks to central-bank digital currencies, and any responsible plan should prepare for them. For example, a digital dollar would pose a danger to the banking system. What if households were to move their money out of regular bank accounts and into central-bank accounts, perceiving them as safer, even if they pay no interest? The central bank could find itself in the undesirable position of having to allocate credit, deciding which sectors and businesses deserve loans. But this risk can be managed. Commercial banks could vet customers and maintain the central-bank digital currency accounts along with their own interest-bearing deposit accounts. The digital currency accounts might not directly help banks earn profits, but they would attract customers who could then be offered savings or loan products. (To help protect commercial banks, limits can also be placed on the amount of money stored in central-bank accounts, as the Bahamas has done.) A central bank digital currency could be designed for use across different payment platforms, promoting private-sector competition and encouraging innovations that make electronic payments cheaper, quicker and more secure. Also read | Digital currency Bitcoin hits record high; now valued over $1700 Another concern is the loss of privacy that central-bank digital currencies entail. Even with protections in place to ensure confidentiality, no central bank would forgo the ability to audit and trace transactions. A digital dollar could threaten what remains of anonymity and privacy in commercial transactions — a reminder that adopting a digital dollar is not just an economic but also a social decision. The end of cash is on the horizon, and it will have far-reaching effects on the economy, finance and society more broadly. With proper preparation and open discussion, we should embrace the advent of a digital dollar.

Cash will soon be obsolete. Will America be ready?

Amid reports of the rising presence of bitcoins and other forms of virtual currencies (VCs) in India, Union Finance Minister Arun Jaitley on Tuesday reiterated that the former are not accepted as a lawful and legal tender in India.

&quot;Since December 24, 2013, the government and the Reserve Bank of India (RBI) have maintained the same stand on bitcoins and other forms of virtual currencies. Through multiple notifications, the two parties have notified the public time and again that bitcoins will not be considered lawful or legal tender in India,&quot; Jaitley said while responding to a question raised in the Rajya Sabha earlier today.

Further, Jaitley stated that an expert group was commissioned to look into the matter, adding that a report will be filed by them on the matter.

&quot;The government does not want to take any substantial steps before the report is filed. We will look into the report and then issue corrective measures after a thorough understanding of the situation. We will also take the global scenario into consideration. However, we have clearly stated that dealing with VCs is at one&#39;s own risk,&quot; he said.

When asked on measures taken to protect citizens from the dangers involved in cryptocurrencies and availability of data on the same, Jaitley noted that 11 exchanges have been identified in India, and reiterated that experts groups are looking into the same.

&quot;Bitcoins are not restricted to India; it is a problem world over. There are 785 VCs in operation worldwide presently. Cryptocurrency lacks dependence and function with anonymity within a virtual community. All operations are online. We have identified 11 exchanges dealing with VCs in India. We are awaiting the official report from experts,&quot; said Jaitley.

On a related note, the Ministry of Finance on Friday issued a statement cautioning investors regarding risks of dealing with cryptocurrencies.

Linking them to &#39;Ponzi schemes&#39;, the ministry argued that unlike others, virtual currencies have no intrinsic value and are not backed by any kind of assets. The price of Bitcoin and other VCs, therefore, is entirely based on speculation, which results in spurt and volatility in their prices.

Prior to this, the users, holders, and traders of VCs were cautioned three times, in December 2013, February 2017 and December, 2017, by the RBI about potential financial, operational, legal, customer protection and security related risks that they are exposing themselves to by investing in Bitcoin and/ or other VCs.

For the unversed, Bitcoins are a part of a rising new genre of digital payments called &#39;cryptocurrencies&#39; that work on blockchain technology with no centralised administrator.

This virtual currency emerged in the aftermath of the financial crisis and allows people to bypass banks and traditional payment processes to pay for goods and services.

Arun Jaitley further stated that an expert group was commissioned to look into the matter, adding that a report will be filed by them on the matter

Amid reports of the rising presence of bitcoins and other forms of virtual currencies (VCs) in India, Union Finance Minister Arun Jaitley on Tuesday reiterated that the former are not accepted as a lawful and legal tender in India. "Since December 24, 2013, the government and the Reserve Bank of India (RBI) have maintained the same stand on bitcoins and other forms of virtual currencies. Through multiple notifications, the two parties have notified the public time and again that bitcoins will not be considered lawful or legal tender in India," Jaitley said while responding to a question raised in the Rajya Sabha earlier today. Further, Jaitley stated that an expert group was commissioned to look into the matter, adding that a report will be filed by them on the matter. "The government does not want to take any substantial steps before the report is filed. We will look into the report and then issue corrective measures after a thorough understanding of the situation. We will also take the global scenario into consideration. However, we have clearly stated that dealing with VCs is at one's own risk," he said. When asked on measures taken to protect citizens from the dangers involved in cryptocurrencies and availability of data on the same, Jaitley noted that 11 exchanges have been identified in India, and reiterated that experts groups are looking into the same. "Bitcoins are not restricted to India; it is a problem world over. There are 785 VCs in operation worldwide presently. Cryptocurrency lacks dependence and function with anonymity within a virtual community. All operations are online. We have identified 11 exchanges dealing with VCs in India. We are awaiting the official report from experts," said Jaitley. On a related note, the Ministry of Finance on Friday issued a statement cautioning investors regarding risks of dealing with cryptocurrencies. Linking them to 'Ponzi schemes', the ministry argued that unlike others, virtual currencies have no intrinsic value and are not backed by any kind of assets. The price of Bitcoin and other VCs, therefore, is entirely based on speculation, which results in spurt and volatility in their prices. Prior to this, the users, holders, and traders of VCs were cautioned three times, in December 2013, February 2017 and December, 2017, by the RBI about potential financial, operational, legal, customer protection and security related risks that they are exposing themselves to by investing in Bitcoin and/ or other VCs. For the unversed, Bitcoins are a part of a rising new genre of digital payments called 'cryptocurrencies' that work on blockchain technology with no centralised administrator. This virtual currency emerged in the aftermath of the financial crisis and allows people to bypass banks and traditional payment processes to pay for goods and services.

Bitcoins not legal tender in India, reiterates Jaitley

The Finance Ministry today cautioned that virtual currencies are not legal tender and such currencies have no protection.

Noting that there has been a phenomenal increase in recent times in the price of virtual currencies (VCs) including Bitcoin, in India and globally, it said the VCs don&#39;t have any intrinsic value and are not backed by any kind of assets.

&quot;The price of Bitcoin and other VCs, therefore, is entirely a matter of mere speculation resulting in spurt and volatility in their prices,&quot; the Finance Ministry said in a statement.

There is a real and heightened risk of an investment bubble of the type seen in Ponzi schemes which can result in a sudden and prolonged crash exposing investors, especially retail consumers losing their hard-earned money, it said.

The statement further said that users, holders and traders of VCs have already been cautioned three times, by the Reserve Bank of India about the potential financial, operational, legal, customer protection and security related risks that they are exposing themselves to by investing in Bitcoin and/ or other VCs.

The RBI has also clarified that it has not given any licence/ authorisation to any entity/ company to operate such schemes or deal with Bitcoin or any virtual currency, it said.

&quot;The government also makes it clear that VCs are not legal tender and such VCs do not have any regulatory permission or protection in India. The investors and other participants, therefore, deal with these VCs entirely at their risk and should best avoid participating therein,&quot; it said.

Consumers need to be alert and extremely cautious as to avoid getting trapped in such Ponzi schemes, it said, adding VCs are stored in a digital/electronic format, making them vulnerable to hacking, loss of password, malware attack etc. which may also result in permanent loss of money.

As transactions of VCs are encrypted they are also likely being used to carry out illegal/subversive activities, such as terror-funding, smuggling, drug trafficking and other money-laundering Acts, it added.

&quot;VCs are not backed by government fiat. These are also not legal tender. Hence, VCs are not currencies. These are also being described as &#39;Coins&#39;,&quot; it said. 
There is, however, no physical attribute to these coins, it said.&nbsp;

The Finance Ministry said virtual currencies are not legal tender and that they have no protection

The Finance Ministry today cautioned that virtual currencies are not legal tender and such currencies have no protection. Noting that there has been a phenomenal increase in recent times in the price of virtual currencies (VCs) including Bitcoin, in India and globally, it said the VCs don't have any intrinsic value and are not backed by any kind of assets. "The price of Bitcoin and other VCs, therefore, is entirely a matter of mere speculation resulting in spurt and volatility in their prices," the Finance Ministry said in a statement. There is a real and heightened risk of an investment bubble of the type seen in Ponzi schemes which can result in a sudden and prolonged crash exposing investors, especially retail consumers losing their hard-earned money, it said. The statement further said that users, holders and traders of VCs have already been cautioned three times, by the Reserve Bank of India about the potential financial, operational, legal, customer protection and security related risks that they are exposing themselves to by investing in Bitcoin and/ or other VCs. The RBI has also clarified that it has not given any licence/ authorisation to any entity/ company to operate such schemes or deal with Bitcoin or any virtual currency, it said. "The government also makes it clear that VCs are not legal tender and such VCs do not have any regulatory permission or protection in India. The investors and other participants, therefore, deal with these VCs entirely at their risk and should best avoid participating therein," it said. Consumers need to be alert and extremely cautious as to avoid getting trapped in such Ponzi schemes, it said, adding VCs are stored in a digital/electronic format, making them vulnerable to hacking, loss of password, malware attack etc. which may also result in permanent loss of money. As transactions of VCs are encrypted they are also likely being used to carry out illegal/subversive activities, such as terror-funding, smuggling, drug trafficking and other money-laundering Acts, it added. "VCs are not backed by government fiat. These are also not legal tender. Hence, VCs are not currencies. These are also being described as 'Coins'," it said. There is, however, no physical attribute to these coins, it said.

Government warns against Bitcoin

The Reserve Bank on Tuesday warned the public against the risks of virtual currencies (VCs) after the recent spurt in the valuation of <a href="http://www.wionews.com/india-news/bubble-or-not-bitcoin-triggering-terror-finance-and-fraud-25623" target="_blank">Bitcoin</a>. Rapid growth in Initial Coin Offerings (ICOs) is a cause for concern, making VCs highly volatile and risk-involving tools of investment.

&quot;There is no underlying or backing of any asset for VCs. As such, their value seems to be a matter of speculation. Huge volatility in the value of VCs has been noticed in the recent past. Thus, the users are exposed to potential losses on account of such volatility in value,&quot; the central bank had said in a statement issued on December 24, 2013.&nbsp;

Simply put, Bitcoin is a cryptocurrency or currency in the digital form similar to Paytm or BHIM. A cryptocurrency is not issued by any bank, financial institution or a central authority. It isn&#39;t tangible and floats in and through digital wallets, making it an entity that is difficult to control, regulated or manipulated by international financial authorities, governments or institutions.&nbsp;

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With fin-tech on the rise around the world there is an increasing focus on cryptocurrencies, such as Bitcoin. But how do these currencies operate and how are they managed? (WION)
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The price of a single Bitcoin skyrocketed to up to US&nbsp;$11,000 last week in a rally which puzzled watchers. The apex bank had previously noted having studied the sector but emphatically clarified that it is uncomfortable with &quot;non-fiat&quot; cryptocurrencies. The RBI had also said that the exchange platforms on which Bitcoins are traded are set up in various jurisdictions whose legal status is also unclear.

&quot;The creation, trading or usage of VCs including Bitcoins, as a medium for payment are not authorised by any central bank or monetary authority. No regulatory approvals, registration or authorisation is stated to have been obtained by the entities concerned for carrying on such activities,&quot; the RBI had said in its first comments in September 2013.

Reportedly, the ministry of finance has been mulling over launching a cryptocurrency called &quot;Lakshmi&quot; and has set up a committee for the same.

(With inputs from PTI)

Bitcoin is a cryptocurrency or currency in the digital form similar to Paytm or BHIM

The Reserve Bank on Tuesday warned the public against the risks of virtual currencies (VCs) after the recent spurt in the valuation of Bitcoin. Rapid growth in Initial Coin Offerings (ICOs) is a cause for concern, making VCs highly volatile and risk-involving tools of investment. "There is no underlying or backing of any asset for VCs. As such, their value seems to be a matter of speculation. Huge volatility in the value of VCs has been noticed in the recent past. Thus, the users are exposed to potential losses on account of such volatility in value," the central bank had said in a statement issued on December 24, 2013. Simply put, Bitcoin is a cryptocurrency or currency in the digital form similar to Paytm or BHIM. A cryptocurrency is not issued by any bank, financial institution or a central authority. It isn't tangible and floats in and through digital wallets, making it an entity that is difficult to control, regulated or manipulated by international financial authorities, governments or institutions. With fin-tech on the rise around the world there is an increasing focus on cryptocurrencies, such as Bitcoin. But how do these currencies operate and how are they managed? (WION) × The price of a single Bitcoin skyrocketed to up to US $11,000 last week in a rally which puzzled watchers. The apex bank had previously noted having studied the sector but emphatically clarified that it is uncomfortable with "non-fiat" cryptocurrencies. The RBI had also said that the exchange platforms on which Bitcoins are traded are set up in various jurisdictions whose legal status is also unclear. "The creation, trading or usage of VCs including Bitcoins, as a medium for payment are not authorised by any central bank or monetary authority. No regulatory approvals, registration or authorisation is stated to have been obtained by the entities concerned for carrying on such activities," the RBI had said in its first comments in September 2013. Reportedly, the ministry of finance has been mulling over launching a cryptocurrency called "Lakshmi" and has set up a committee for the same. (With inputs from PTI)

RBI warns users against the risks of virtual currencies like Bitcoin

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