The pilot project for India’s own digital currency or digital rupee will be launched in 2022. Though yet to be named, the pilot project joins a list of over a hundred countries who are in different phases of implementing their national digital currencies.
As per RBI’s deputy governor T. Rabi Sankar, the CBDC will be a secure and efficient way for cross-border payments. He was speaking at the recently held India Ideas Summit. The UPI based payments in India have been a big hit, and now used by retail stores, taxi and transport operators and the unorganized labour force. UPI is also accepted in the UK, UAE, France and Singapore.
A national digital rupee, once floated, will be in direct competition with currently popular blockchain currencies like Bitcoin and stable coins like USDT. These crypto payment coins are competing for faster and more voluminous transactions at cheaper prices compared to credit card payments over VISA or Mastercard.
It is not clear whether the digital rupee transactions will carry fees and charges. Given the “high profile” nature of cryptocurrencies and their technical complexities, it should not be a surprise if the fees are levied in the highest category. Payment by digital currency could thus become a “premium” service and a revenue earner for centralized institutions.
The CBDC pilot project and the regulatory framework in India are under development, and helping them is an inter-ministerial committee, the global Financial Stability Board of which India is a member, and the Fidelity National Information Services (FIS).
The FSB body, as per a report from Outlook, is expected to issue its report this month in October, and is being awaited eagerly for aiding the creation of India’s crypto legislation, which remains a work in progress. An important issue, as per the report, is whether to ban wallet transactions of crypto currencies and how to deal with crypto trading.
FSB was formed after the G20 summit of 2009. From India, there is representation by three officials – Secretary of Economic Affairs, DG of RBI, and Chairman of SEBI. Its members include central banks like the European Central Bank, and ministries and authorities from various G20 countries.
The digital rupee will obviously be released not at once, but in a graded approach, as stated by the finance minister this year. Preparations and early piloting is thus expected, and reports say that a few public banks, including the SBI, have been approached to run the pilots internally.
The role of FIS, Fidelity’s consultancy service, will include advisory for payments and financial inclusion, and a Virtual Lab to try out the currency.
Meanwhile, this year has been a disappointing one for Indians owing crypto (about 7% Indians own crypto, as per some estimates). The opinions coming from RBI on the nature of cryptocurrencies (no intrinsic value, no underlying cash flow, speculative and sophisticated ponzi schemes) have lowered expectations of receiving any fillip or stimulus.
On the contrary, the levy of 30% capital gains tax and the 1% TDS on every trade (with no offset for losses, thus both gains and losses will be taxed) have spoiled the party. Decline in trading has been reported, and the thronging of foreign based crypto exchanges. The decline in global markets and the recession-like trends that began after the tax announcements have made matters worse.
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