India Cracks Down On Crypto: Regulators Favor CBDC In Push Vs. Bitcoin & Co.

by

As a seasoned analyst with extensive experience in the global financial landscape, I find myself intrigued by India’s strategic approach towards cryptocurrencies and Central Bank Digital Currencies (CBDCs). Having witnessed the rapid evolution of digital finance in various parts of the world, it is fascinating to see how India is leveraging technology to cater to its population and boost economic inclusion.

India is moving towards banning personal usage of cryptocurrencies such as Bitcoin and Ethereum, in a bid to control risks within its unstable financial market by implementing stricter regulations.

The government said they will have a preference for Central Bank Digital Currencies (CBDC), as they provide all the benefits of private cryptocurrencies, without having the potential for instability or potential for misuse.

Regulators noted that Central Bank Digital Currencies (CBDCs) may not necessarily share the same objectives as those commonly linked with cryptocurrencies, which often focus on financial inclusion. However, the Reserve Bank of India (RBI) endorses CBDCs because they offer a secure alternative that can still aim for the financial inclusion targets usually associated with cryptocurrency.

The Growing Adoption Of CBDC In India

In the year 2022, India unveiled its digital currency, known as e₹. Initially adopted by more than 5 million users and 16 banks, this project has been experiencing significant growth, potentially shaping the future of digital finance within India. At present, the digital rupee is being utilized in specific programs.

In simpler terms, as stated by RBI Governor Shaktikanta Das, this implies providing more streamlined, secure financial services to resources and underserved communities within our society. As these pilot projects continue to progress and succeed, the Indian government is considering expanding the use of Central Bank Digital Currency (CBDC) beyond just domestic transactions, but also for improving cross-border exchanges such as international trade and remittances. This could potentially revolutionize the way we handle global commerce and money transfers.

This growth will strengthen India’s influence in the international financial arena, and it could lead to increased economic equality and a more widespread adoption of digital finance throughout various industries.

Crypto: Regulatory Shifts And Taxation

The interaction between cryptocurrencies and India has seen some changes, with cryptocurrency trading resuming in 2020 following the Supreme Court’s decision to lift the ban on crypto transactions in 2018. However, since then, India has been implementing a relatively strict tax policy regarding cryptocurrencies. They categorize cryptocurrencies as Virtual Digital Assets (VDAs) and apply a tax rate of 30% on income from these assets, with a 1% TDS (Tax Deducted at Source) on transactions exceeding INR 10,000.

While the government acknowledges the potential and allure of blockchain and cryptocurrency technologies for broad applications like tokenizing government bonds for increased security, it remains cautious regarding the use of private currencies.

In this scenario, India retains the authority to enforce stricter rules, potentially including a complete ban on private cryptocurrencies, following the approval of the joint paper from the Financial Stability Board and International Monetary Fund in 2023. This could mean tighter control over digital currencies within India’s jurisdiction.

In the meantime, Central Bank Digital Currencies (CBDCs) are likely to serve as preferred models for regulatory decisions due to the consultative process involved in making these decisions.

Read More

2024-10-23 02:11