India plans on introducing its own Central Bank Digital Currency (CBDC) in the 2022-23 financial year as the country looks to legitimise the use of blockchain technology.
The announcement of the Digital Rupee came during India’s budget speech delivered by Finance Minister Nirmala Sitharaman this week.
Sitharaman said the CBDC would “give a big boost to the digital economy” and “lead to a more efficient and cheaper currency management system”.
The Digital Rupee, Sitharaman said, would use “blockchain and other technologies” and be introduced by the Reserve Bank of India in the 2022-23 financial year.
India’s Finance Minister also proposed a flat digital asset tax of 30 per cent on cryptocurrency transfers.
“There has been a phenomenal increase in transactions in virtual digital assets,” she said. “The magnitude and frequency of these transactions have made it imperative to provide for a specific tax regime.”
The proposed tax is a significant shift from a government which only a few months ago was considering a ban on cryptocurrency.
Nigel Green from financial advisory firm deVere Group said India was clearly seeing the value of cryptocurrencies for its economy and predicted it would lead to the country adopting Bitcoin as legal tender.
“Recognition of digital currencies by the world’s second most populous country and the world’s largest democracy is a landmark moment for cryptocurrencies,” he said.
“The clarity will further shore-up the crypto space and help drive prices.
“I’m confident that history will show that this is the first step to India adopting Bitcoin as legal tender in the future. It remains a long way off, but it’s certainly a step in that direction.”
El Salvador famously made Bitcoin legal tender last year.
While El Salvador is largely alone in its bitcoin adoption, central banks around the world have been investigating the introduction and development of their own CBDCs as the popularity of cryptocurrencies and so-called ‘web3’ technology has increased.
The Reserve Bank of Australia has run a pilot program to test its own wholesale CBDC and the US last month launched a discussion paper for a digital USD.
The Bank of Jamaica will roll out its own digital currency early this year following a pilot program last December.
It is looking to bring more citizens into the financial system, Bank of Jamaica deputy governor Natalie Haynes told Reuters this week, because “the majority of Jamaicans are financially excluded”.
China has already started a large beta test of its CBDC, e-CNY, which had 261 million users by the end of 2021.