Recent reports indicate that the Indian central bank wants to use blockchain technology in order to control fraudulent activities in the country. The announcement dictated that the Reserve Bank of India (RBI) would partner with some of the other prestigious banks in the country to launch this blockchain-based project.
Trade financing will be the focus of the project and it is the first major project to be launched by central bank institutions that leverage blockchain technology.
Curbing frauds in the country
The purpose of the project is to come up with a mechanism for preventing scammers from engaging in fraudulent activities. A typical example of the kind of fraud the Indian central bank wants to prevent is one that was conducted Mehul Choksi and Nirav Modi. According to the accusations, the parties fraudulently obtained credit from the PNB worth billions of dollars.
The pilot project will make use of blockchain technology for improving the traceability of the cash flow and will be known as a proof of concept. Blockchain technology can prove to be immensely useful in this scenario because it uses a public ledger that can keep an accurate record of all transactions and cannot be altered. With good record-keeping, it will be possible to trace any transaction that takes place.
This initiative will also tackle the problem of document alteration, such as Letters of Credit (LC). These digital documents can come in handy for preventing frauds worth millions of dollars. According to an official involved in the project, they have launched the pilot and are collaborating with banks for issuing digital LCs via blockchain-based systems.
Tech companies to assist the RBI
Three technological companies will provide their technical expertise to the RBI Innovation Hub, which includes IBM, Corda Technologies from the United States, and Belgium-based SettleMint. There are a number of banks that will participate in the initiative, which include the State Bank of India, Bank of Baroda, Union Bank of India, ICICI Bank, Axis Bank, and HDFC Bank.
The initiative also wants to incorporate blockchain technology in the core banking systems, but they have to assess the benefits it can offer before doing so. They need to look into how the technology can secure and facilitate the financial system.
Crypto stance of the Indian government
The Indian government does not have a favorable stance where cryptocurrencies are concerned. There has been a lot of backlash from the crypto community when the new round of crypto taxes was announced and they are expected to increase. A meeting of the Indian council is scheduled to happen in the coming week and they will decide on additional taxes.
However, while the government may not find cryptocurrencies useful, it is certainly looking into the uses of the technology that powers these digital currencies i.e. blockchain. Shaktikanta Das, the Governor of the RBI, had previously stated that blockchain technology does not need cryptocurrencies to thrive. The technology is being incorporated in different industries globally because of the transparency benefits it can offer.