Shaktikanta Das, the governor of the Reserve Bank of India, stated last month that the central bank may be launching a pilot program for its digital currency by December. In an interview, Das said that the RBI is working on a phased implementation approach for the same. He also noted that the RBI is being “extremely careful” with its central bank digital currency (CBDC), which is a new product for the bank. The RBI defines CBDC as digital legal tender issued by a central bank. It is the same as a fiat currency and is exchangeable one-for-one. The only difference is its form.
In the last few years, virtual private currencies such as Bitcoin have gained widespread acceptance. They are encrypted digitally, are decentralized, but not connected with or regulated by any government. CBDCs, on the other hand, will be digital versions of fiat currency backed by the government. According to former RBI deputy governor R Gandhi, the public knows cryptocurrency cannot be a currency in this case because it lacks the essential characteristics of a currency, namely being legal tender. In his speech, he argued that governments around the world should treat and regulate crypto as a separate asset class in order to prevent illegal activities associated with virtual currencies.
A report has been submitted by an inter-ministerial panel on cryptocurrency, under the chairmanship of secretary (Economic Affairs) to examine virtual currency issues and propose specific actions. A recommendation has been made to prohibit all private cryptocurrencies in India, except for virtual currencies issued by a state.
Draft legislation pertaining to cryptocurrency
A draft bill on cryptocurrencies may propose defining them and classifying them according to their uses. The move is expected to benefit Indian cryptocurrency investors who have been waiting for a law to regulate virtual coin trading. It has been reported by The Economic Times that cryptocurrency could be classified as a commodity or an asset in the new draft bill. There may also be references to taxation for cryptocurrencies in the draft bill, including laws for payment methods, investments, and other utilities. However, even though the government had earlier stated that cryptocurrencies would not be outright banned, it has not yet clarified how it plans to deal with virtual coin trade in India. As part of the new draft bill, cryptocurrencies may be categorized according to the type of technology they use. As pointed out in the ET report, however, the government will primarily be focused on regulatory purposes using the assets.
Finance Minister’s Take
In light of the growing use of cryptocurrencies around the world, and suggestions that India might develop its own digital currency, Union finance minister Nirmala Sitharaman said that such a decision should be carefully considered. Taking El Salvador as an example, which adopted bitcoin as legal tender, she said the public protested.
“It’s not a question of literacy or understanding – it’s also a question of to what extent this is a transparent currency; is it going to be a currency available for everyone? El Salvador may be an exceptional place where they tried some experimentation. There are other countries that are talking about the central bank having a legitimate cryptocurrency. That could be a possibility,” Sitharaman said in an interview with Hindustan Times’ Editor-in-Chief Sukumar Ranganathan.
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