The Indian finance ministry announced Tuesday that the government will soon launch a digital rupee using blockchain technology with the country’s central bank, a move that could put it far ahead of other nations.
Finance Minister Nirmala Sitharaman announced the plans to introduce a digital currency in parliament on Tuesday, while presenting the country’s Union Budget 2022. She also announced that income from transfer of virtual assets will be taxed at 30%.
“I propose to provide that any income from transfer of any virtual digital asset shall be taxed at the rate of 30 percent. No deduction in respect of any expenditure or allowance shall be allowed while computing such income, except the cost of acquisition,” she reportedly said.
The Ministry of Finance last October received a proposal from the Reserve Bank of India for an amendment to widen the definition of ‘bank note’ to include digital currencies.
The details of a phased introduction of a Central Bank Digital Currency (CBDC) are being worked out, Pankaj Chaudhary, minister of state in the Ministry of Finance, told The Times of India, in a request for comment.
“Introduction of CBDC has the potential to provide significant benefits, such as reduced dependency on cash, higher seigniorage due to lower transaction costs, reduced settlement risk. Introduction of CBDC would also possibly lead to a more robust, efficient, trusted, regulated and legal tender-based payments option,” Chaudhary said in a written comment.
The minister added that possible risks also have to be weighed up against the benefits. India’s central bank, like others around the world, has regularly warned of potential hazards of investing and trading digital currencies.
Global market volatility around expected U.S. interest rate rises hasn’t just hit stocks, but has triggered losses across the cryptocurrency space. Bitcoin BTCUSD, -0.08% was changing hands at $38,540 on Tuesday, a gain of 3.7%, but a sharp drop from a record high of $68,990.90 seen in November 2021.
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Earlier in January, the Federal Reserve produced a report laying out the pros and cons of dollar digitization and a CBDC. It said the Fed could start working on it with support from the government. Russia’s central bank recently advised more tighter regulation around cryptocurrency activity and mining, while China banned all activity last year.
While many countries, including the U.S., are researching CBDCs, only two have launched such currencies — the Bahamas and Nigeria. This CBDC tracker shows the progress made around the world.
While China has cracked down on activities, it appears to be far ahead of other countries with a digital yuan, with test runs across several regions from late 2020, and plans announced late last year to connect a CBDC with payment apps.