The Reserve Bank of India (RBI) is testing the concept of launching a digital rupee for feasibility and functionality. At the same time, India’s Ministry of Finance is preparing new legal provisions to regulate the country’s crypto market.
India’s central bank released an annual report in which RBI analysts detailed the work done and plans to examine the pros and cons of the central bank digital currency (CBDC) rollout in 2022-2023.
The Finance Bill 2022 provided the legal basis for the digital rupee launch. However, the government stresses that the Indian CBDC must accurately meet the country’s goals and not disrupt “monetary policy, financial stability and efficient operations of currency and payment systems.”
Based on the government’s requirements, the Reserve Bank proposes to take a phased approach to the CBDC implementation, namely to go through all the necessary phases from proof of concept to development of a pilot project and the launch of the CBDC.
RBI analysts are currently exploring various elements of the CBDC design that will allow the digital rupee to merge with the existing fiat system without causing disruption.
The report argues that the financial bill to impose a 30% crypto tax on unrealized gains, which was passed by the upper house of the Indian government in late March this year, also provides a legal basis for launching the digital rupee.
At the same time, Indian officials are concerned about the possible “dollarization” of the national economy due to the adoption of cryptocurrencies and CBDCs. Reserve Bank of India Governor Shaktikanta Das is confident that the adoption of digital currencies issued by foreign private entities and denominated in US dollars is against the country’s sovereign interests. According to the official, their proliferation could significantly reduce “the RBI’s capacity to determine monetary policy and regulate the monetary system of the country.”
India’s Economy Minister Ajay Seth said a consultation paper on cryptocurrencies, on the basis of which the government will adopt new legal rules on regulating the country’s crypto market, will soon be ready. Seth stressed the need for a global consensus, for which India is consulting with various national and foreign organizations, including the World Bank and the International Monetary Fund (IMF). The minister added that the government’s analysts are looking at rules adopted in other countries before deciding how the state should regulate the domestic crypto industry.
To recap, India recently used blockchain technology to monitor securities, but officials also pointed out that the potential anonymity of DLT users is not cost-effective for CBDC use.
