Back in February, Finance Minister Nirmala Sitharaman outlined the Union Budget for 2022-23 in parliament. But the spending plan itself wasn’t the most notable part of her speech. Instead, it was the news that the Reserve Bank of India (RBI) had plans to introduce a digital rupee in the upcoming fiscal year.
In the announcement, Sitharaman indicated that the currency would be formally known as the Central Bank Digital Currency (CBDC). And she indicated that the move was aimed at creating “a more efficient and cheaper currency management system” that would help boost the nation’s digital economy. Here’s an overview of exactly what the CBDC is, how it’s expected to work once it debuts, and the other notable takeaways from the speech.
The CDBC Explained
According to the RBI’s website, the CBDC is an electronic sovereign currency that’s equivalent to the existing paper or polymer forms of the rupee. That means it will show up on the RBI’s balance sheets just as all other minted and circulating currency now does. But so far, there’s been no clear indication of exactly what form the CBDC will eventually take.
In her speech to parliament, Sitharaman mentioned that the CBDC would be based on blockchain and other technologies — leaving plenty of room for ambiguity. The statement means that the CBDC could soon become the first cryptocurrency launched by a major country. Or, it could mean that the CBDC will emerge as a distinct type of currency product, using a mixture of yet-unnamed technologies.
Cryptocurrencies Face Uncertain Fate
What is known, however, is that cryptocurrencies have an uncertain future in India. The latest draft crypto bill still suggests that the government intends to ban all private cryptocurrencies within India. The move would cut the country off from the global cryptocurrency market and make it illegal for citizens to buy crypto or use it as a medium for trade.
But since that draft most certainly took the announcement of the CBDC into account, most market watchers believe that the crypto ban is intended to help boost the forthcoming digital rupee. For her part, Sitharaman offered no additional details about the plans for cryptocurrency regulation and instead announced that there would be a new crypto tax introduced in the coming year.
A New Crypto Tax
As a part of the tax announcement, Sitharaman indicated that the 2022-23 budget included a 30% flat tax on all crypto profits. In addition, the government will now mandate that a tax of 1% be deducted at the source of any crypto transactions, regardless of any gain or loss on the transaction.
The news is expected to have an outsize impact in India, which has over 100 million crypto users at last count. That’s higher than any other nation at the time of this writing and could lead to a major uptick in tax collections nationwide. But, as experts predict, the new levy could also lead to a decrease in speculative crypto trades within India, potentially crippling the industry there.
Either way, however, the tax will go into effect in July, after which its ultimate effects will become clear. And by then, the finer details of the CBDC should also begin to come into focus. Together, those developments could mean that the fate of cryptocurrencies in India should be a fait accompli — whether the government acts to ban them outright or not.