Nirmala Sitharaman during the budget 2022, confirmed that the Reserve Bank of India will soon issue a digital rupee.
This digital currency will be based on blockchain technology which is the tech behind Bitcoin and other popular cryptocurrencies. This Digital Rupee will be an issue by 2022-23, claimed the Finance Minister of India.
“Digital Currency will also lead to a more efficient and cheaper currency management system. It is therefore proposed to introduce a digital rupee using blockchain and other technologies to be issued by the Reserve Bank of India, starting 2022-23”, she said.
The move comes as a result of RBI wanting to introduce digital currency and the Indian government wanting to ban the use of cryptocurrencies in the country. Although, then things were halted after a committee was formed to hold talks with stakeholders and give recommendations, now seems like things are finally moving forward.
Later on, a draft of the crypto bill had suggested that government may still ban all cryptocurrencies in the country to promote a possible digital currency from the RBI.
“To create a facilitative framework for the creation of the official digital currency to be issued by the Reserve Bank of India. The Bill also seeks to prohibit all private cryptocurrencies in India. However it allows for certain exceptions to promote the underlying technology of cryptocurrency and its uses,” the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 read.
The FM was expected to provide more clarity on the use of cryptocurrency during her Budget presentation. However, there was no mention of Bitcoin or other cryptocurrencies. Instead, a crypto tax has been introduced.
Digital Rupee FAQ:
What is Digital Rupee?
The Digital Rupee is a digital currency that the central bank of India introduced 2022-23 onwards. It will become a legal tender in India once the Reserve bank notifies it. It will operate on blockchain, which is a digitally distributed, decentralized ledger and other technologies, per Finance Minister Nirmala Sitharaman.
What is CDBC?
CDBC stands for Central Bank Digital Currency.
Who will launch the CDBC and when?
The Reserve Bank of India will launch the CBDC in the upcoming financial year. Finance Minister Nirmala Sitharaman stated that the Digital Rupee will launch in India in the financial year 2022-23. Latest reports claim it might debut by early 2023.
What is a CDBC?
CBDC is a legal tender issued by a central bank in a digital form. It is similar to a fiat currency issued in paper and is interchangeable with any other fiat currency. The Digital Rupee will be stored in a digital wallet app, much like Bitcoin, Ethereum, and other altcoins, which means you won’t be able to hold it physically.
What is the need for CDBC?
It will provide users with convenience and security of digital as well as the regulated, reserve-backed circulation of the traditional banking system.
Does this mean any major change for citizens?
One major difference will be that a Digital Rupee transaction will be instantaneous as opposed to the current digital payment experience.
How will Digital Rupee be?
It will be exactly like the rupee, It will be a 1 to 1 convertible, however, unlike the normal rupee, the digital rupee will be on your phone.
Will Digital Rupee be different from Private Cryptocurrencies?
Firstly, Digital Rupee will be a legal tender in the country and will be exchangeable at par with cash, which is not the case with others. Also, unlike private digital currencies, the Digital Rupee will have a central backing that means it will never lose its value. It will be a sovereign currency in an electronic form that will appear as a liability on a central bank’s balance sheet.
What will be the benefits of Digital Rupee?
- It will be efficient and easy to distribute as it’s a virtual currency.
- It will reduce settlement risk in the financial system and enable more real-time and cost-effective globalization of payment systems, without an intermediary.
- It will help in the country’s vision of a green economy by reducing our reliance on paper and plastic money.
- CDBC will avoid damages like extreme volatility, fraud, and money laundering caused by private cryptos.
- The adoption of a digital rupee will improve the digital economy of India, similar to the effects of UPI.
FM Nirmala Sitharaman announced in her Budget 2022 presentation that a new crypto tax will be introduced under which virtual digital assets will be taxed at 30% in the country. She also said that no set-off will be allowed in case of losses. Gifts in virtual digital assets will be taxed in the hands of the recipients.