India leans towards total ban of private cryptocurrencies such as Bitcoin and Ethereum in an attempt to regulate risk in their current volatile market.
The government said it would favor central bank digital currencies (CBDCs), because they offer all the benefits of private cryptocurrencies, without the potential for instability or abuse.
Regulators added that central bank digital currencies do not necessarily need to meet the financial inclusion goals often associated with cryptocurrencies. The Reserve Bank of India (RBI) supports central bank digital currencies because this can bring a safer alternative that can still achieve the financial inclusion goals typically associated with Cryptocurrency.
Growing adoption of Central Bank Digital Currency (CBDC) in India
In 2022, India launched its project Digital rupeeE₹. Introduced with over 5 million users and 16 participating banks, this initiative is gaining significant momentum, which perhaps has the promise of defining the future of digital finance in India. The digital rupee is currently in use in targeted programs.
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According to Reserve Bank of India Governor Shaktikanta Das, this means providing more efficient and secure financial services targeting the resource and vulnerable sections of society. As the pilot projects gain momentum and success, the Indian government is looking to increase their scope CBDnot only for domestic use but also in promoting cross-border transactions, potentially revolutionizing international trade and remittances.
This expansion would enhance India’s position in the global financial landscape. This improvement is also likely to lead to increased economic inclusion and digital financial transformation in most sectors.
India's great wonder, the Taj Mahal. Image credit: Kriangkrai Thitimakorn via Getty Images.
Crypto: Regulatory Shifts and Taxes
Cryptocurrencies’ relationship with India has been in flux. Cryptocurrency trading made a comeback in 2020 when the Supreme Court overturned the ban on cryptocurrency transactions in 2018. However, since then, India follows a very strict tax policy where cryptocurrencies are classified as cryptocurrencies. Virtual digital assets (VDAs) and income taxes at the rate of 30% and transactions above INR 10,000 at the rate of 1% TDS.
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Although the government recognizes the promise and interesting nature of blockchain technology and cryptocurrencies in public use, such as tokenizing government securities for use to enhance security, it still has many concerns about private currency.
This will remain within India’s discretion to maintain stricter regulation, even an absolute ban on private cryptocurrencies in general in this context, especially after the submission of the synthesis paper approved by the Financial Stability Board and the International Monetary Fund in 2023.
At the same time, CBDCs will remain the preferred model and potential model for regulatory options as the final decisions depend on the consultation process being conducted appropriately.
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