The Reserve Bank of India will launch its digital rupee known as Central Bank Digital currency in 2022-23. On 1st February, Finance Minister Nirmala Sitharaman made a Budget 2022 speech in parliament. The announcement made introduced the digital rupee and its pressing importance on digitization of the economy. Also, FM discussed in detail the significant boost the Indian economy can get with the digital currency. In light of the announcement, the FM has proposed a 30% tax deduction on income from cryptocurrencies.
Currently, there has been a lot of talking on digital currency, cryptocurrency, blockchain technology in the market. Interestingly, governments from around the world are looking for ways to indulge in crypto or issue their blockchain-based legal digital currency. As the crypto market has skyrocketed in the last 3-4 years. On the other hand, India has decided to make a rational shift towards a cashless economy.
What is a CBDC?
A Central Bank Digital Currency (CDBC), is a blockchain technology-based currency issued by the central bank. According to RBI, a CDBC is no less a currency issued by the bank but in digital form. The digital currency will offer the same functions as a medium of exchange in the market. The transactions are recorded in a blockchain-based electronic decentralized ledger monitored by RBI. These ledgers are a book of records that holds the transaction information in blocks.
However, not much information has been passed by the ministry regarding the working system of digital currency. Moreover, digital rupee is fundamentally different from other private cryptocurrencies like Bitcoin (BTC) and Ethereum (ETH). It is because the digital currency is under legal tender and governed by the national government.
How a digital rupee is important to citizens?
Payments using CDBCs reduce settlement risks in the financial system. Also, it will eradicate the interbank settlement risks. Due to the use of CDBCs, the development of payment systems will be more prolific and worthwhile. It will become easy to make long distanced payments and fund transfers to different currencies.
A full-time supporting infrastructure is to be built around a digital rupee to focus on ease of transaction, scalability, and less vulnerability of the public. Moreover, it will readily affect cross-border remittances and faster money settlement between two or more parties. Besides, the government has to print has less physical notes. It will help to build an ‘efficient and cheaper currency management system’ in the country.
Also, read - Indian Crypto Tax: boost or bane for Investors