On Friday, the Reserve Bank of India (RBI) announced that it was considering a graded approach to the rollout of central bank digital currency (CBDC), the much-anticipated alternative to cryptocurrency announced by the Union finance minister Nirmala Sitharaman while presenting the Budget 2022-23.
India to roll out CBDC on a graded approach
The RBI, in its annual report released earlier yesterday, said it was considering the advantages and disadvantages of bringing CBDC to India, with gradual steps along the way, including proof of concept, trials, and finally, implementation. It was seeking whether the concept could be made into a reality and operate as intended.
In February, Indian finance minister Nirmala Sitharaman mentioned the creation of a digital rupee to give a “significant boost” to the digital economy during budget discussions. RBI emphasized in the report that India’s CBDC must adhere to the country’s monetary policy, financial stability, and efficient currency and payment system management goals.
Based on this desire, RBI is now researching the many design elements of a CBDC that may coexist within the existing fiat system without disrupting it. The Indian Finance Bill 2022, which established a 30% crypto tax on unrealized gains, also created a legal framework for the introduction of a digital rupee.
The Reserve Bank of India (RBI) proposed a three-step graded approach for rolling out CBDC “with little or no disruption” to the traditional financial system, further cementing India’s plan to establish an in-house central bank digital currency by 2022-23.
The Reserve Bank is engaged in the introduction of a central bank digital currency (CBDC) in India. The design of CBDC needs to be in conformity with the stated objectives of monetary policy, financial stability, and efficient operations of currency and payment systems. The Reserve Bank proposes to adopt a graded approach to the introduction of CBDC, going step by step through stages of Proof of Concept12, pilots, and the launch.
RBI report.
The government’s official stance is that cryptocurrency is a used payment method in the country and, as such, should be legalized. The RBI Act, 1934 was amended with an addition to the Finance Bill, 2022, which launched the CBDC; this bill had been enacted, providing a legal basis for the CBDC’s establishment.
India ranks number one among surveyed countries for crypto ownership
At the proof-of-concept stage in 2021, RBI is investigating the viability and usefulness of creating a CBDC. On May 17, RBI officials issued a warning against crypto adoption, claiming that cryptocurrencies pose risks of the “dollarization” of the Indian economy.
According to the Economic Times’ findings, reported by Cryptopolitan, prominent RBI officials, including governor Shaktikanta Das have raised issues about cryptocurrencies in a global economy dominated by the US dollar. An unnamed official said:
Almost all cryptocurrencies are dollar-denominated and issued by foreign private entities, it may eventually lead to dollarization of a part of our economy which will be against the country’s sovereign interest. It [crypto] will seriously undermine the RBI’s capacity to determine monetary policy and regulate the monetary system of the country.
RBI official.
In India, crypto regulation is inevitable. According to a recent study published by Finder’s Cryptocurrency Adoption Index, an international data collector platform, India ranks first among the list of 27 countries surveyed for cryptocurrency ownership.
According to Finder, the crypto ownership rate in India is 29.9 percent, ahead of Nigeria (26.5 percent) and Vietnam (26.2 percent). According to the report, this is roughly double the global average of 14.6%.
Surprisingly, rural Indians are more responsive to digital currencies than city-dwellers. India was ranked second in the Global cryptocurrency adoption index by blockchain and companies Chainalyis and Finder in October 2021 and January 2022, respectively.
The Reserve Bank will continue its efforts to enhance the regulatory environment for consumer protection, upgrade and provide easy and quick access to the complaint redress mechanism, and also percolate customer awareness and financial education to excluded groups of people as well as remote areas of the country, according to its most recent announcement.
Additionally, the RBI said the country’s move to digitalize financial services would assist in the setting up of 75 digital banking units in 75 districts by 2022. Also, earlier this month, India designated the country’s Computer Emergency Response Team (CERT) as the national agency for cyber security, including the cryptocurrency sector, in a move that specifies which authority has jurisdiction over suspicious or unlawful activities in the field.
For a long time now, the government of India has taken a wait-and-see approach to blockchain and cryptocurrency, with the country’s crypto legislation remaining in cold storage as it awaits global agreement. However, the recent move by RBI sets in motion the country’s crypto legislation. Sitharaman also acknowledged the potential of bitcoin and blockchain while acknowledging its risks.
