India aims to roll out digital currency by next year: FM Nirmala Sitharaman
According to Finance Minister Nirmala Sitharaman, India plans to introduce digital currency by 2023.
“The government and RBI are investigating its various commercial use purposes, not just financial inclusion, which is largely achieved through the JAM trinity (Jan Dhan-Aadhaar-Mobile),” she said.
According to the minister, the government maintains a consistent digital push across all industries.
“The Union Budget announced the creation of a central bank digital currency, digital banks, and a digital university. The government is constantly nudging digitally across sectors “Sitharaman explained.
In addition, the digital currency will result in a more efficient and cost-effective currency management system. As a result, it is proposed that the Reserve Bank of India issue Digital Rupees using blockchain and other technologies beginning in 2022-23,” Sitharaman said.
Unlike the current mobile wallet system offered by private companies, the Reserve Bank’s digital rupee blockchain would be able to trace all transactions.
The Reserve Bank of India (RBI) will introduce digital currency in the next fiscal year, beginning April 2022, to boost the digital economy and efficient currency management, Finance Minister Nirmala Sitharaman proposed on Tuesday in her Budget 2022-23 speech.
Last year, venture capital and private equity invested more than Rs 5.5 lakh crore, enabling one of the largest startup and growth ecosystems in the world. Scaling up this investment, she says, necessitates a thorough examination of regulatory and other impediments.
Digital currency is a currency that is only available in digital or electronic form. It is also known as electronic money, digital money, electronic currency, or cybercash.
Digital currencies have no physical attributes and are only available in digital form. Computers or electronic wallets connected to the internet or designated networks are used to conduct digital currency transactions.
Physical currencies, on the other hand, such as banknotes and minted coins, are tangible, which means they have distinct physical attributes and characteristics. Transactions involving such currencies are only possible if their holders have physical possession of them.
Digital currencies also allow for instant transactions that can be carried out across borders. For example, a person in the United States can make digital currency payments to a counterparty in Singapore as long as they are both connected to the same network.
Digital currency is a catch-all term for the various types of currencies that exist in the electronic realm. In general, there are three types of currencies:
Cryptocurrencies
Cryptocurrencies are digital currencies that rely on cryptography to secure and verify network transactions. The use of cryptography is also used to manage and control the creation of such currencies. Cryptocurrencies include Bitcoin and Ethereum. Cryptocurrencies may or may not be regulated depending on the jurisdiction.
Digital Currencies Issued by Central Banks
Central bank digital currencies (CBDCs) are digital currencies that are regulated and issued by a country’s central bank. A CBDC can be used to supplement or replace traditional fiat currency. In contrast to fiat currency, which exists in both physical and digital forms, a CBDC exists only in digital form.
England, Sweden, and Uruguay are among the countries considering plans to launch digital versions of their domestic fiat currencies.CBDC adoption has been justified for the following reasons:
Faced with dwindling paper currency usage, central banks seek to popularise a more acceptable electronic form of currency.
Jurisdictions with a high reliance on physical cash and a desire to improve issuance efficiency
Central banks strive to meet the public’s demand for digital currencies, as evidenced by the growing use of private virtual currencies while avoiding the more negative consequences of such private currencies.
CBDCs could also enable more real-time and cost-effective payment system globalization. An Indian importer can pay its American exporter in digital Dollars in real-time, without the need for an intermediary. This transaction would be final as if cash dollars were exchanged, and would not even necessitate the availability of the US Federal Reserve system for settlement.
In terms of blended finance, she stated that the government-backed Funds NIIF and SIDBI Fund of Funds had provided scale capital, resulting in a multiplier effect.
The government would promote thematic funds for blended finance to encourage important sunrise sectors such as climate action, deep-tech, digital economy, pharma, and agri-tech, with the government share limited to 20% and the funds managed by private fund managers, according to the minister.
“Creating a blockchain-based central bank digital currency while bringing virtual digital assets under the tax net at the highest rate of 30% will help reduce speculative play, particularly in the cryptocurrency space,” said Shravan Shetty, MD, Primus Partners- Digital Currency.
Shetty added that the central currency will help bring the benefits of a digital currency to the economy in a structured framework.
In response to a question about the regulation of private cryptos and other virtual digital assets (VDAs), the Finance Minister stated that the government is consulting with stakeholders and has invited the industry to participate.
“Once the consultations are completed,” she said, “the ministry will take the necessary steps.” The FM also praised the industry’s decision to welcome taxation on private cryptos.
“At the moment, we are neither regulating nor prohibiting it, but we will discuss it after consultation,” Sitharaman clarified.
However, Sitharaman stated that the government recognizes the value of cryptocurrency. “Many Indians see a lot of future in crypto, and as a result, I see a revenue opportunity in it,” she said.
The CBDC had received an overwhelming response from hundreds of founders and investors at the time of its announcement.
Paytm’s Vijay Shekhar Sharma, CRED’s Kunal Bahl, Binance founder, and CEO Changpeng Zhao, and Sriram Krishnan were among those who praised the government’s decision to launch the digital currency and take another step toward regulating cryptocurrency.
India joins a growing list of countries considering the establishment of CBDCs. Just one day before India’s announcement, Jamaica’s central bank announced plans to launch a national digital token in the first quarter of 2022.
Other Eastern Caribbean countries, including Grenada, Saint Lucia, Antigua, and others, launched DCash, a digital currency, in 2021.
CBDCs have also been investigated in Japan, China, and the United States.
In total, seven countries have launched CBDCs, while 78 others have plans to do so or are investigating their options.
Central bank digital currencies are similar to cryptocurrencies in design, but they may not require blockchain technology or consensus mechanisms.
Furthermore, cryptocurrencies are typically unregulated and decentralized. Their value is also volatile, being determined by investor sentiments, usage, and user interest. As a result, they are volatile assets that are better suited for speculation than any financial system that requires stability.
The global rise of CBDCs calls into question the importance of decentralization and regulation to the overall success of cryptocurrencies.
According to Harry Parikh, Associate Partner – M&A Tax and Regulatory Services, BDO India, a hasty introduction of taxation on digital currency combined with a withholding tax on every transaction could cause a slew of compliance issues for crypto businesses.
The country’s central bank will soon launch its virtual currency, Union Finance Minister Nirmala Sitharaman said on Wednesday. She told that the Reserve Bank of India (RBI) will launch the central bank digital currency (CBDC) “sooner rather than later.”
