India announces plans to launch national blockchain-based digital currency
Digital rupee could launch as soon as this year
Nirmala Sitharaman, India's finance minister, announced on Tuesday that the Reserve Bank of India (RBI) has plans to issue a digital version of the rupee, with pilot projects for a central bank digital currency (CDBC) commencing this year.
Speaking during the Budget 2022 [pdf] session in Parliament, Sitharaman said that the introduction of the digital currency would provide a major boost to the digital economy while also leading to a more efficient and cheaper currency management system.
The minister didn't say how the digital rupee would operate or appear, but she did say it will be implemented using blockchain and other technologies, and could energe this year.
"It is ... proposed to introduce digital rupee using blockchain and other technology to be issued by the Reserve Bank of India starting 2022-2023," she said. The 2022-2023 financial year begins on April 1st.
CapitalVia Global Research told the Times of India that RBI is "weighing many factors related to the scope and regulatory structure of the planned digital currency, which would likely coexist with cash and digital payment methods".
Sanjeev Sanyal, the government's principal economic adviser, stated that the government will take a balanced approach on the issue of regulation of cryptocurrencies as they have implications on the country's financial stability.
The government's announcement of a decision to launch a so-called central bank digital currency (CBDC) comes after years of wavering on its stance.
India has now joined a growing list of countries that are considering launching their own national digital currency.
China has been working on a digital version of the yuan since 2014.
Over the last two years, the People's Bank of China has been conducting trials in the form of lotteries, where individuals in specific cities are given digital yuan to spend.
However, the country has yet to introduce its digital currency nationwide and has no plans to do so in the near future.
The Bank of England and the UK Treasury are also looking at the possibility of launching a CBDC, and Japan, Jamaica and many other countries are also exploring the idea of developing digital currencies.
Last month, the US Federal Reserve released a study into a digital dollar, although it did not take a firm stand on whether it would issue a CBDC.
In her budget speech on Tuesday, Ms Sitharaman also outlined plans to levy a 30 per cent tax on income gained from digital assets.
She added that the size and frequency of digital asset transactions have made it essential to provide for a specific tax regime where profits from transactions are taxed.
Cryptocurrency traders applauded the government's intention to introduce a digital rupee and to tax the income from digital assets, believing that the move is the first step toward the eventual legitimisation of this asset class.
"The regulatory guidance on tax from the government furthers the mainstreaming excitement of this emerging asset class with over $6 billion worth of investments in India," said Ashish Singhal, founder and CEO of cryptocurrency exchange platform CoinSwitch.
"It is also the gateway to the future decentralised world, aka Web3.0. The budget provides clarity on taxation and shows the government's intent to take a business-friendly approach while protecting the interest of consumers and the exchequer."
Sumit Gupta, CEO of India-based cryptocurrency exchange CoinDCX, told the BBC that taxing digital assets would be beneficial to the market, although the tax rate is too high.
"A tax rate of 30 per cent is on par with that imposed on gains from speculative activities like lottery, gambling and other gaming activities. That proposed 30 per cent might act as a dampener for greater adoption," he said.