As the name implies, central bank-issued digital money is legal tender in digital form. It is sometimes referred to as Central Bank Digital Currency (CBDC). According to Reserve Bank of India (RBI) Deputy Governor T Rabi Shankar, a digital currency is the same as a fiat currency and may be exchanged one-for-one with it.
Only the shape is different. On a central bank’s balance sheet, it shows as a liability or as money in circulation.
Is India getting a digital currency?
India will receive a digital currency sometime during the fiscal year 2022-23. In the Union Budget, Finance Minister Nirmala Sitharaman suggested the introduction of a digital currency. It would be issued by the RBI and would use blockchain and other technologies.
The establishment of the CBDC would provide a significant boost to the digital economy, she said, adding that it will also result in a more efficient and cost-effective currency management system. For some time, the RBI has been working on both a retail and wholesale CBDC.
Has any other country issued digital currency?
Amid the emergence of private cryptocurrencies, a number of nations across the world are considering introducing their own digital currencies, which many regard as the money of the future. The Atlantic Council reports that at least nine nations have started their own CBDC, with Nigeria introducing the e-Naira.
China, too, has debuted its digital yuan, and many other nations are doing trials. The US Federal Reserve and the European Central Bank are both exploring and developing their own CBDCs. In fact, according to a recent Bank for International Settlements (BIS) poll, 86% of Central banks were actively investigating it.
Digital Currency vs Cryptocurrency:
A central bank issues digital money, but cryptocurrencies such as Bitcoin and Ethereum are private and have no issuers. A digital currency, according to the RBI, is not equivalent to private virtual currencies, which contradict the historical definition of money.
“They are not commodities or claims on commodities since they have no inherent worth,” Rabi Shankar had previously stated. However, blockchain technology underpins both the digital currency and private virtual currencies.
Are cryptos such as Bitcoins and Ethereum legal in India?
The Union Budget 2022-23 includes a taxation mechanism for virtual digital assets such as cryptocurrency and non-fungible tokens. However, the Finance Minister has stated that taxing these assets does not guarantee legality. However, cryptos remain in a regulatory grey area for the time being.
Then, what happens to people who have invested in cryptos?
People can continue trading and investing in cryptos as usual for the time being, but they will have to pay taxes in accordance with the new regulations. It is worth noting that the majority of investors were already paying taxes on their crypto assets.
According to cryptocurrency exchanges, there has been no substantial change in investor behaviour since the Budget release, but they are confident that the Finance Ministry would cut the high tax rate of 30% as well as the 1% TDS.