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How will India’s digital currency affect cryptocurrencies?

In an apparent bid to crackdown on cryptocurrencies, India’s central bank is introducing a digital currency in the next financial year using blockchain and other supporting technology.

“Introduction of a central bank digital currency will give a big boost to digital economy. Digital currency will also lead to a more efficient and cheaper currency management system,” finance minister Nirmala Sitharaman said while presenting the federal budget publicly with watching.

India’s central bank has voiced “serious concerns” around private cryptocurrencies on the grounds that these may cause finalcial instability.

The Indian government has also decided to levy 30% tax, the highest tax band in the country, on income arising out of digital assets, Sitharaman said.

However, losses from sale of digital assets cannot be offset against other income, she added.

Industry estimates suggest there are 15 million to 20 million crypto investors in India, with total crypto holdings of around 400 billion rupees ($5.37 billion). No official data is available on the size of the Indian crypto market.

Recall that the Indian government had in November hinted on ban of private cryptocurrencies ahead of the launch of its official digital currency.

The proposed legislation follows a crackdown on cryptocurrencies in China, where financial regulators and the central bank have made all digital currency transactions illegal.

The Indian proposals were flagged in a parliamentary bulletin listing upcoming legislation which included one paragraph on “The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021”.

The accompanying description of the bill appeared to leave some room for using cryptocurrencies, however. “To create a facilitative framework for creation of the official digital currency to be issued by the Reserve Bank of India,” it read. “The bill also seeks to prohibit all private cryptocurrencies in India, however, it allows for certain exceptions to promote the underlying technology of cryptocurrency and its uses.”

India’s prime minister, Narendra Modi, had said that cryptocurrencies could “spoil our youth” and the country’s central bank has repeatedly warned, in line with other central banks, they could pose “serious concerns on macroeconomic and financial stability”.

Typically, cryptocurrencies are pitched as decentralized alternatives to paper money. This is increasingly a problem for central banks, which could lose control over monetary supply if cryptocurrencies like Bitcoin and stablecoins—a type of token that maintain a steadier value—become the norm amongst users from best Australian online pokies.

So some central banks have decided to create crypto competitors that they control. The value of this central bank-controlled digital currency, or CBDC, mirrors the price of its physical equivalent. For example, Nigeria’s e-Naira is worth the same as the physical Naira

Only nine countries have now fully launched a digital currency. Nigeria is thee latest country to launch a CBDC, the e-Naira, the first outside the Caribbean. But 14 countries, including China and South Korea, are now in the pilot stage with their CBDCs and preparing a possible full launch.

A Central Bank Digital Currency (CBDC) is a virtual money backed and issued by a central bank. As cryptocurrencies and stablecoins have become more popular, the world’s central banks have realized that they need to provide an alternative—or let the future of money pass them by.

Benefits of CBDCs could include letting people without bank accounts use digital payments, and giving central banks a lower-cost alternative to cash for providing a national payment method, according to the International Monetary Fund. Yet, critics are concerned about potential cybersecurity threats to these currencies and the lack of anonymity in using them. 

Cary Grant
Cary Grant
Cary Grant, the enigmatic wordsmith hailing from the UK, is a literary maestro known for unraveling the intricacies of life's myriad questions. With a flair for delving into countless niches, Grant captivates readers with his insightful perspectives on issues that resonate with millions. His prose, a symphony of wit and wisdom, transcends boundaries, offering a unique lens into the diverse tapestry of human curiosity. Whether exploring the complexities of culture, unraveling philosophical conundrums, or addressing the everyday mysteries that perplex us all, Cary Grant's literary prowess transforms the ordinary into extraordinary, making him a beacon of intellectual exploration.


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