Could blockchain tech take India cashless?
"Banks may setup a private blockchain for their internal purposes," the authors wrote. "This not only helps them to train human resources in the technology, but also benefits by enabling efficient asset management [and] opportunities for cross-selling."
The Institute for Development and Research in Banking Technology (IDRBT) was founded in the 1990s by the Reserve Bank of India (RBI), and last week, it released its first major white paper focused on blockchain (which includes details of a test related to trade finance applications).
"Cloud-based computing, blockchain processing technologies and virtualization of IT systems are a few examples which hold potential for being used in a big way,” RBI deputy governor Rama Gandhi said during a speech in July. “Banks and IDRBT can work together to study these, test them out and adapt for best use."
The authors also suggested other avenues for India’s broader banking sector to experiment with the tech.
"Further areas where BCT can be applied advantageously in BFSI sector would be supply chain finance, bill discounting, monitoring of consortium accounts, servicing of securities and mandate management system," the authors added.
The full report highlights work being done by central banks in countries like Canada and the UK, among others.
“From a technological perspective, we feel that [blockchain] 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 [blockchain].”
The paper’s authors wrote:
In mid-2015, officials from the central bank posited that while digital currencies could fuel money laundering efforts, they could also improve financial inclusion and reduce payments friction.
As India's government pushes ahead with a controversial plan to move the country away from physical cash, a group of researchers backed by its central bank has called for an investigation into how blockchain could achieve that goal.
To start, it recommends that banks consider standing up their own internal blockchain networks, both as a boon for training purposes as well as a way to see what, if any, benefits the tech could bring to their institutions.
It was only last summer that the RBI itself called for domestic banks to pursue research into the tech, calling for institutions to work in conjunction with the IDRBT on possible applications.
Since then, a number of financial institutions – as well as private sector stakeholders beyond the banking world – have moved explore use cases and develop products using the tech.
Image via Shutterstock
In addition to providing a broad overview of the tech’s mechanics and potential uses in the Indian banking sector, the white paper posits that the time is right to begin assessing how the rupee, India’s national currency, could be digitized through the use of a distributed ledger.
That the research group would call for broader use of blockchain within the Indian financial sector is perhaps unsurprising, given recent developments.
According to IDRBT, blockchain could help achieve that goal.
The Indian government, led by Prime Minister Narendra Modi, sparked broad criticism for its move in early November to withdraw high-value banknotes of the Indian rupee, the country's currency. Modi would later double-down on his plan, calling for India to embrace digital money later that month, and the government went on to begin amending legislation to further those plans.
From there, IDRBT goes on to say, banks could work cooperatively in the areas of AML/KYC, loan syndication and trade finance.
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