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Commodity Metallic Paper Money Bank Money, Crypto
Money Money legal tender deposit Currency
Last time we saw Cheque, NEFT, UPI-
money blockchain
digital
BHIM…cards upto ATM
payment
Some topics pending…
 10th April 2019

Google clarified:
- Google Pay (formerly ‘Tez’) operates as a technology service
provider to its partner banks, using UPI infrastructure
- It is not part of payment processing or settlement. Since the
payment is done from one bank account to another, there is no
need for users to load individual wallet with money.
- So no license / registration / authorization required from RBI
under Payment & Settlement System Act 2007
 Helps fighting
fake /fictitious
accounts

Can also use with Micro-ATM

Commodity Metallic Paper Bank Crypto
Money Money Money Money, Currency
digital blockchain
payment

WHY Encourage? How to Encourage? Regulatory Bodies?

• Reforms Before 2019 • Payment Regulatory Board-
• Reforms During 2019 • Digital Ombudsman
 Body: Charms Body: Challenges
- Saves cost of printing new - MDR, Interoperability,
paper currency (Rs.27 Fintech companies
billion a year) – evolving more rapidly than
environment. legal framework. Storing
- Better efficacy of data in China- hacking /
monetary policy updates, fraud?
NPA/fraud surveillance. - KYC: Aadhar vs privacy
<more in future lectures> debate.
 Body: Charms
- Better tax surveillance, checks on
fake counterfeit currency terror
finance,
- targeted delivery of agri-loans and
subsidies/ DBT: Annually Rs. 1
lakh crore saved.
- Can save farmers from
moneylenders, and poor families
from Ponzi schemes.
Body: Challenges
- Power, telecom infrastructure not
available everywhere.
- Government itself must become a role
model first in handling tax, tender, tolls,
procurements through digital payment.
- To encourage digital payment if subsidy,
tax breaks, lotteries given for perpetual
time -> fiscal deficit.
- Post-Demonetization, digital
transactions ↑ but then again ↓ so,
punitive measures = :-(
 Body: Charms
Secure, difficult to steal, time,
convenience, financial inclusion.
Body: Challenges
- Digital divide, Low financial
literacy- notion of security
associated with holding physical
currency.
- Frauds, Card cloning, service fees
on NEFT / card payments.

What are the charms / challenges from

businessman’s point of view. ->
homework / self-study.
http://yojana.gov.in/Recent_archive_2017.asp
http://yojana.gov.in/Recent_archive_2017.asp
Commodity Metallic Paper Bank Crypto
Money Money Money Money, Currency
digital blockchain
payment

WHY Encourage? How to Encourage? Regulatory Bodies?

• Reforms Before 2019 • Payment Regulatory Board-
• Reforms During 2019 • Digital Ombudsman
Committees to encourage digital Payment in India
Old things. Not
•Ratan Watal Committee by FinMin (16’Dec):.
•C.Babu Naidu chief ministers’ Committee to PM (16’Nov-’17 Jan): greatly important
(Except 2018:
Budget, MDR)

Other attempts for limited time period

•HRD ministry’s Vittiya Saksharta Abhiyan : college students explain people.
•on UPI-BHIM: NITI+NPCi launched lottery / cashback schemes for customers (Lucky
Grahak) and merchants (Digi Dhan Vyapar).

Budgets
•Budget-2017: ceilings the cash transactions, tax incentives to companies for using
digital transactions, reduced custom duties on ATM related devices.
•2018: MDR Subsidy. Budget: will explore blockchain technology [of
cryptocurrencies] for promoting digital economy.
•Interim Budget 2019: just vague lip-service that we’ll encourage digital payments
 This affects my
profitability. I
shd insist on
cash payment 

Rs. 10,000/- paid Rs. 10,000-Rs.200

Customer doing Cash payment
If more adopted, then
…then why need PoS!
we can charge less...
Cash transaction -blackmoney

PoS
Adoption MDR ▲
▼

Debit PoS
Card= cash Adoption
withdrawal ▼
FMCG, ice-cream-margin
Merchants either don’t keep POS is thin anyways. PoS →
Machine Bank account, then IT
OR REFUSE to accept card for low dept will know my income,
value transactions. they may RAID me!
 I get such powers from payment
and settlement system act 2007

Rs. 10,000-Rs.90
Rs. 10,000/- paid (so less money gone
than before)
 Ok then even 90
rupees will not be
cut from my
account!! More
profits to me!!!
YES YES YES

- From 1/1/18 for Two years

- Payments made via Debit card, BHIM or Aadhar enabled payment system
upto Rs.2,000 Official notification reads like this. So, we’ve to remember. Although as such BHIM
- Govt will bear the MDR. / AEPS direct bank2Bank transaction don’t attract the case of MDR.
 But, We’ll know
the transaction
volume
& raid on you
accordingly.

If ₹10,000 bill then entirely merchant to bears… but

₹2000 x 5 times swipe = Government will bear MDR
subsidy on both. ;-)
I’ve not taught this
yet, but asked so
either attempt or
skip.

Pause Video to
Attempt it Yourself
Objective: Promote DIGITAL
Payment & financial
inclusion
WHY Encourage? How to Encourage? Regulatory Bodies?
• Reforms Before 2019 • Payment Regulatory Board-
• Reforms During 2019 • Digital Ombudsman
Whenever you notice a
Committee:
1. objective? Year?
2. Who appointed?
3. Who is chairman?
4. Other members not imp
unless very high profile
like 15th FC
5. Major recommendations
I’ll not discuss this Polity Q, as it’s not today’s topic.
Point being: ‘exact recommendations of a
Committee’ – is a very rare question for prelims and
mains, except big hats like 15th FC. Eventhough
PDF/Magz walla passionately make PhD Pausethesis
Video on
to
it, you should not lose sleep. Attempt it Yourself
Nonetheless my
recommendations useful
as fodder points for
Mains/Essay/Interview
2019-May: RBI published Payment and Settlement
Systems in India: Vision 2019 – 2021. but similar &
overlapping reforms. Don’t lose sleep over it for prelims.
Commodity Metallic Paper Bank Crypto
Money Money Money Money, Currency
digital blockchain
payment

WHY Encourage? How to Encourage? Regulatory Bodies?

• Reforms Before 2019 • Payment Regulatory Board-
• Reforms During 2019 • Digital Ombudsman
Banking Reforms: Narsimham-II (1998)
• Payment & Settlement Systems Act 2007-> RBI supervise..
• RBI-> Board for Regulation and Supervision of Payment and
Settlement Systems. (BPSS: Statutory body)
• All Payment system providers have to register.

2017-Budget
• Replace BPSS with Payments Regulatory Board (PRB) in RBI
• Ratan Watal Committee on digital payment recommended
• 2018- October: RBI opposes this move.
 Controversy 2018, Sept/Oct:
Chief Economic Affairs Secretary S.C.Garg Committee
gave report to finmin. Suggested separate chairman
appointed by Government.

Dy.Gov (out 3 Members

of 4) by Union Need not waste time until
the bill is passed to
amend the Payment &
RBI officer Settlement Systems Act,
2007.
My money was
accidently cut / not
reflected etc
Commodity Metallic Paper Bank Crypto
Money Money Money Money, Currency
digital blockchain
payment

WHY Encourage? How to Encourage? Regulatory Bodies?

• Reforms Before 2019 • Payment Regulatory Board-
• Reforms During 2019 • Digital Ombudsman
 2018 2019 2020

Span of CCA for Pre’20 General Budget 2018

Prelim
• D-2 year. i.e. from
31/5/20
Jan-2018
• 1st Feb-2018:
Budget mentioned a
few things about
Bitcoins and
Cryptocurrencies, so
we’ve to prepare,
even though it’s ‘old
budget’.
So let’s study BITCOINS
“$: legal tender in US: purchasing power
down Subprime crisis (2007: more in Pill#3)

Credit Card, ATM, Netbanking: “charges”

due to ‘middlemen’ (Banks, Payment
Gateway ops)

Anarchist groups: Fiat currency = bad.

Bankers & card companies are evil, we’ll
make our own (Virtual) currency in
“Decentralized manner”
 Download software
But you cannot solve it and start mining
with ‘spade’, you’ve to…

Imagine this is a virtual

data cube / complex
algorithm made using
blockchain technology.
If you solve it, you get Mining Speed measured in “Hashrate”
Bitcoins. Ordinary PC/laptop not suffice… as less Bitcoins
left, it becomes harder to mine.
 Download software
and start mining

21 million BTC
No new coins beyond that

1 Rs. = 100 Paisaa Mining Speed measured in “Hashrate”

1 BTC = 10^8 Ordinary PC/laptop not suffice… as less BTCs left, it
SATOSHI becomes harder to mine.
 Mining Sell goods / Exchange with
services to miner legal tender.

• Graphics card price hike: 2x-4x due to bitcoin

mania. Is this productive usage?
• E-waste generation. Waste of electricity: 20
megatone CO2 = 1m transatlantic flights
• If quantum computer invented it’ll solve it in
seconds, thus crashing the value of Bitcoins.
 Mining Sell goods / Exchange with
services to miner legal tender.

• Bitcoin wallets: “public address” & pvt key: but not

traceable. unlike Paytm/Phonepe/gmail where they store
your mobile no, IP address etc.
• Narcotics & illegal trade, Terror finance.
• Scam: can’t get justice, unlike “flipkart brick phone”
• Selling goods/services in exchange of bitcoins: Government
deprived of GST, Custom duty, Income tax.
I’ll pay you
rupee or
dollar…just
Mining Sell goods / Exchange with
give me services to miner legal tender.
bitcoin.
• Rs → $: Forex dealers have to
register with RBI under FEMA. KYC,
reporting. PMLA, ED…
• Here Rs / $ → Bitcoin using
anonymous online trade portals
Thik hai… [terror finance, narcotics & illegal
activities]
Paytm is linked with
mobile number so if
used for illegal BUT Once a
trade, police can person converted
track it, incl. ₹ (or $) to Bitcoin
mobile’s GPS and loaded into
location. his bitcoin wallet,
then difficult to
track. It doesn’t
store info about
your IP Address,
phone number,
email id, GPS etc.
 Here Rs / $ ->
Bitcoin using online
trade portals [terror
finance & illegal
Mining Sell goods / Exchange with activities]
services to miner legal tender.

Buying and selling price difference =

commission of this online exchange portal.
 GOLD PRICE 10 GMS

Invested in gold @11k and sold @31k 31,000

“Gain (profit)” on this investment = 20k
Union Govt. levies Capital Gains Tax on
this. (More in budget lecture)

14,500
11,000 12,500

2007 2008 2009 2012

This blind Craze is because of geeks, nerds,
speculators and and narco dealers.

Suppose you purchased

1BTC= 5000$
 & sold @$20,000. But difficult to trace, so not declared in IT
returns, Govt deprived of CGT. Since Feb’18: 1 lakh+ Notices sent
by IT Department by data mining of bank transactions in bitcoin
exchange portals

Suppose you purchased

1BTC= 5000$
We want to 4x times our
money but can’t buy
individually 
 @100 people give me
5000 each, and make it
4x by investing in
bitcoins.

1 Rs. = 100 Paisaa

1 BTC = 10^8 SATOSHI

We want to 4x times our

money but can’t buy
individually 
 @100 people give me
5000 each, and make it
4x by investing in
bitcoin.

1 Rs. = 100 Paisaa

1 BTC = 10^8 SATOSHI

We want to 4x times our

money but can’t buy
individually 
Similar issues & developments with
Ethereum, Litecoin, Digicoin & LAXMICOIN
Ambivalent statement- owning
bitcoin not crime, but hiding them
in IT filing- that’d be a crime.
 Misc. Committees: notIMP
2017-March: Dinesh Sharma, Secretary
Economic Affairs
•Suggested total ban on cryptocurrencies
•But activists challenged in SC. So Government sets up
new Committee.

2017-Dec: Subhash Chandra Garg, Secretary

Economic Affairs Ball by ball not imp.
sufficient to know
•Kept making news in 2018. Government Committees
•Draft law & framework. Illegal to hold cryptocurrencies are apprehensive of
that are not regulated. Bitcoins.
 Difficult to pull out the
money invested in
bitcoins in rupee form

RBI gets such powers under

1. Banking regulation Act
2. Payment & settlement
system act,
3. FEMA Act
 Website selling bitcoins

Bitcoins
Rupees transferred online, bank
accounts involved

Banks must stop

association with any
crypto company.
 Morocco,
Nepal,
Algeria
Bangladesh

Equator,
Bolivia • Names not important,
• But the fact that India is neither the first nor the only country to
restrict / ban bitcoins.
• Which was the first country to ban? Ans. KBC-GK notIMP
 Pause Video to
Attempt it Yourself
 Pause Video to
Attempt it Yourself
Decentralized because not issued by a
central server / entity. Although even if you
have doubts on that, by elimination you can
arrive at right answer
Pause Video to
Attempt it Yourself
 Pause Video to
Attempt it Yourself
 Pause Video to
Attempt it Yourself
What Finance
Ministry said in
Feb 2018
Budget

What Finance
Ministry said
Dec 2017
While 1 and 2 are secondary benefits
but not explicitly mentioned in
Government announcements
Pause Video to
Attempt it Yourself
Now let’s focus on positive news
 Cryptocurrencies
If we store data like Bitcoin use
centralized in server/ blockchain
harddisk= theft, hacking,
technology to
natural disasters 
keep record of
mining and
transactions.

blockchain technology is like ‘torrents’ so even if file /record

deleted from one computer, it stays in the decentralized network.
 Physical transaction Digital Transaction

Worker in Mumbai Worker in Mumbai

“ledger” /
Transaction Postal Dept NEFT, IMPS, UPI, Bhim,
record. Money order Paytm
Manual record
Money digitally sent in
keeping- Currency Notes in Odisha
Odisha
expensive, slow
inefficient
 Physical transaction Digital Transaction

Worker in Mumbai Worker in Mumbai

“ledger” / “ledger” /
Transaction Postal Dept NEFT, IMPS, UPI, Bhim, Transaction
record. Money order Paytm record. Online
Manual record servers-
Money digitally sent in
keeping- Currency Notes in Odisha
Odisha electricity,
expensive, slow disaster,
inefficient hacking.
Physical transaction Digital Transaction

Worker in Mumbai Worker in Mumbai

Blockchain Technology
“ledger” / Transaction record.
Postal Dept Blockchain Technology Decentralized digital records-
Money order NEFT, IMPS, UPI, Bhim, Paytm similar to torrent so even if file
deleted from main server, it
Currency Notes in Odisha Money digitally sent in Odisha
stays in the online network
 • Old can’t be deleted= PERMANENT.
• New entries editing : secure,
decentralized, multiple stakeholders
• No middleman = credit card type
charges to Visa/Mastercard.
• Financial transaction, ownership
records of land, vehicle and
companies..

Public record: If you make entry, others

will know it (like Wikipedia)…atleast RBI
& taxmen.
 2018- Nov:
• World’s first blockchain bond called “Bondi”-
less cost in server / database /paperwork
maintenance.
• Issued by World Bank → Australian public
invests Australian dollars, gets ~2% interest
Capital?
Canberra (+Principal) after 2 years.
• This money is loaned to development
projects. More about bonds in SEBI lecture
 Capital Honolulu.
50th State of USA (so legal tender $)

Capital?
Canberra
 Capital Honolulu.
50th State of USA (so legal tender $)

Marshall Islands
• Capital Majuro, Sovereign state, free association with USA
(Defense, social security, budget)
• Legal Tender was U$D. But, (2018-Feb) became first country to
launch sovereign cryptocurrency named “Sovereign” [SOV]
Capital? • Legal tenders: $ and SOV. No anonymity unlike Bitcoins.
Canberra • Israeli startup “NEEMA” to help in blockchain, Total 24
milSOV->6 mil to be sold to international investors… (MiPSC)
 Capital: CARACAS
Neighboring countries?
Equator passes?
Panama Canal passes?

1992: Earth Summit @Rio(UNFCCC,

Which scientist CBD, Desertification)
made ground 2016: Olympics
breaking 2019: BRICS summit
discovery here?
Buenos Aires
2017: WTO ministerial conference
2018: G20 Summit, JAI Trilateral.
(will study these in pillar#3)
100 million petro tokens will be
issued – President Nicholas
Maduro
100 million petro tokens will be
issued – President Nicholas
Maduro
(FEB-2018)
• ~ 65 dollars, ~ 52 euro
• 0.0073 Bitcoin
• 0.121 Etherum
• 28.55 lakh bolivars
100 million petro tokens will be (FEB-2018)
issued – President Nicholas • ~ 65 dollars, ~ 52 euro
Maduro • 0.0073 Bitcoin
• 0.121 Etherum
• 28.55 lakh bolivars

Q. Who can buy Petro?

Ans. Initially, only Venezuela Residents. Sale in Nov’18
Q. Where can Petro be used?
Ans. Initially, in fees, taxes & salaries.
Q. Can it be called “Legal Tender”?
Ans. Yes / No
Fiat money / Representative Money
•Is it in form of coin / currency? Yes it’s a coin but “Virtual coin”.
•issued by Government/ its Central bank? Yes by Venezuela.
•not backed by a physical commodity. Only price linked with oil barrel, but no
promise that you’ll be given a barrel. At max equivalent bolivar currency!
•Petro is a fiat money? Yes.

Legal tender
•A fiat money, which can’t be refused for payment of debt / financial
obligations within a country.
•Petro initially for fees, taxes, salaries. Grocery store could refuse to accept it.
However, Venezuela's Government & SC Judgment- it’s a LEGAL TENDER
(apart from Bolivar). [But their writ doesn’t run outside- USA banned Petro]
 Pause Video to
Attempt it Yourself
Currency
exchange we’ll
study in pill#3

Inflation we’ll
study in pill#4
• Both Obama & Trump imposed financial sanctions
on Venezuela for human rights violation, drug-
trafficking & aiding Hezbollah…USA companies
can’t buy / invest.
• 2018: Venezuela announced “Petro”, a “Sovereign”
cryptocurrency backed by Venezuela’s oil reserves.
• Allegations: Petro= invented to outsmart US
sanctions, there is Russian hand…
• USA bans Petro as well. Google pay removed its
official app.
• Anyways, we are not preparing for VPSC
further PHD unnecessary, even though
theHindu may feel very passionate about it.
 Pause Video to
Attempt it Yourself
 Capital Honolulu.
50th State of USA

Marshall Island
• Capital Majuro, Sovereign state, free
association with USA (Defense,
Capital?
Canberra
social security, budget)
• Currency was U$D
 Pause Video to
Attempt it Yourself
 Anonymity •Tax evasion, illegal usages
•We don’t have 100% Digital literacy and financial
literacy.
•Online bitcoin purchase “middlemen” = PONZI
Logical order

Speculation
scams
•Erosion of hard earned savings, because No
intrinsic value, unlike gold.

•more urban Indians spending on this activity = PCs/

Environment, E- laptops more expensive for rural area->Digital
Waste angle divide.
•Electricity waste, e-waste…
 Cryptocurrencies
If we store data like Bitcoin use
centralized in server/ blockchain
harddisk= theft, hacking,
technology to
natural disasters 
keep record of
mining and
transactions.

blockchain technology is like ‘torrents’ so even if file /record

deleted from one computer, it stays in the decentralized network.
In real exam, not possible
to think great points
immediately. but try to If we store data
give 3-4 points related to •Define and write salient features <earlier
slides>: fast, secure, decentralized, economic centralized in server/
Q.
database. Faster & Cheaper than harddisk= theft, hacking,
Economy NEFT/RTGS/IMPS. natural disasters 
•“Smart automated contracts”: Blockchain
based money app -> enter in bus / train, ticket
money deducted automatically based on GPS)
•If we link Aadhar card with Family, Land, Vehicle
Company ownership. Store data in Blockchain
tech-> disaster, Chinese Hacking. Datamining
Governance / Taxation, crime investigation.
Administration •Such database can help tracking of vehicles &
people: pandemic disease / disaster
management more efficient.
•PDS leakage. Targeted delivery of subsidies.
 ✓ If you give on that date and time, then rank
will be given.
✓ If you give it after that date/time then only
score will be given, no rank.
✓ DO weekly things on weekly basis.
Backlog/bing-watching =#EPICFAIL.
Commodity Metallic Paper Money Bank Money, Crypto
Money Moneymorning: your
Tuesday legal tender deposit
google Currency
forms doubts answered in PDF. money blockchain
digital
payment
Tuesday night: Quiz Wednesday noon: Handout for
next week (Monetary policy)