Regulators in this Asian nation are supporting central bank digital currencies while moving towards banning private cryptocurrency assets like Bitcoin and Ethereum...
According to information from media agencies in India, the national government is moving towards banning private digital assets like Bitcoin and Ether. This move is the result of extensive consultations with key regulatory bodies, highlighting the risks posed by private digital currencies. Instead, officials support Central Bank Digital Currency (CBDC) as a safer and more beneficial alternative.
CENTRAL BANK DIGITAL CURRENCY ON THE RISE
Government discussions with major organizations have indicated a strong consensus against private cryptocurrencies, citing the potential for abuse in financial transfers and stability issues surrounding stablecoins. Stablecoins are a type of cryptocurrency designed to provide price stability by pegging their value to fiat currency, often USD.
A senior official explained: "CBDCs can do anything that cryptocurrencies can. CBDCs offer more benefits than cryptocurrencies and eliminate associated risks."
According to local reports, this viewpoint has garnered attention as India is testing its digital currency, the digital rupee, demonstrating its commitment to promoting financial inclusion and ensuring safer transactions.
The aforementioned official also questioned the reliability of stablecoins, which are pegged to assets like gold but remain susceptible to market volatility. They also stated that stablecoins are not as stable as they appear and that CBDCs provide a much more reliable alternative to financial systems.
India's stance is reinforced by a comprehensive report passed at the G20 summit in September 2023, conducted by the International Monetary Fund (IMF) and the Financial Stability Board (FSB). The report endorsed stricter regulations on cryptocurrencies and allowed countries to implement even higher restrictions, including outright bans.
Another official noted: "Although the IMF-FSB synthesis document proposes a minimum regulatory threshold, it does not prevent any country from imposing higher restrictions, including complete bans."
Blockchain - the technology behind cryptocurrencies has received favor from Indian regulators for various reasons. Instead of private cryptocurrencies, officials see the potential of using blockchain for other purposes such as digitizing government securities and targeted subsidies.
THE FUTURE OF DIGITAL FINANCE
Shaktikanta Das, the Governor of the Reserve Bank of India (RBI), stated that the programmability feature of CBDCs could ensure that funds are directed to the right beneficiaries, further reinforcing India's financial inclusion efforts.
India's CBDC pilot was launched in November 2022. To date, it has attracted over 5 million users and involves 16 major banks. The State Bank of India (SBI) has recently tested lending through CBDC in the agricultural sector.
Officials believe that as more data is gathered from ongoing pilot projects, the scope of the digital rupee will be expanded both in India and for cross-border transactions, which could revolutionize international trade and remittances.
Although the government's trend to ban private cryptocurrencies is receiving significant support, the final decision will be made after more consultations. The broader debate currently revolves around whether CBDCs can truly replace private digital currencies.
Cryptocurrencies in India have undergone many regulatory changes. Cryptocurrency trading resumed in 2020 when the Supreme Court overturned a ban on cryptocurrency trading from 2018. However, since then, India has followed a fairly strict tax policy by classifying cryptocurrencies as Virtual Digital Assets (VDAs), imposing a 30% tax on digital assets, which is 2.5 times the tax applied to stocks held for more than a year. The sale of cryptocurrencies is taxed at 1% of the total transaction value.
While the government acknowledges the promising and attractive nature of blockchain technology and cryptocurrencies for widespread use, there are still some concerns about private currencies. Meanwhile, CBDCs will remain the favored model and a viable template for regulatory options.
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