India is scrupulously pursuing Russia’s and China’s policy on cryptocurrencies and is getting help from a number of lending institutions and financial companies to develop what will for all intents and purposes be a state-owned digital currency (CBDC).
India: work in progress on the country’s digital currency
According to some Indian government officials, the project is now in its final stages, final tests and improvements will be made between now and the end of 2022 when the new Rupee 3.0 will be launched.
The Reserve Bank of India (RBI) together with the State Bank of India, Punjab National Bank, Union Bank of India, and Bank of Baroda will be testing and improving the currency to the point where it will be ready to be on the market within a couple of months, ideally by December this year.
“There is a pilot project on CBDCs. The RBI could come with the launch this year, when exactly the product will be released and the specifications have to be seen,”
said a senior official of the country’s Central Bank.
The US company FIS, which is no stranger to bestowing CBDC development efforts with central banks is one of the external companies that is providing the necessary help for the timely implementation of the project, online and programmable payments, financial inclusion and cross-border CBDC payments should run smoothly.
Julia Demidova director at FIS said in an interview last week that:
“The FIS has had various engagements with the RBI … Our connected ecosystem could be extended to the RBI to experiment with various CBDC options. Whether it’s a wholesale or retail CBDC transaction, our technology can also be extended to commercial banks where they can test and tokenize central bank money in the form of digital regulated money.”
Nirmala Sitharaman, the country’s Minister of Finance shows optimism and reports that soon the currency will see the light of day and Indians will soon have a solid and valuable currency with which to become familiar.
At the sidelines of the 2022 federal budget presentation in February, Nirmala Sitharaman had said that the Reserve Bank of India would issue its own CBDC in this financial year.
The country’s prime minister, Narendra Modi, went into detail explaining how:
“The digital rupee will be the digital form of our physical rupee and will be regulated by the RBI. This will be one such system that will allow for an exchange of physical currency for digital currency.”
The relationship between India and crypto adoption
The country’s relationship with cryptocurrencies, while very much embattled as is often the case especially in countries whose economies have established and grown over the last few decades, is not the best, Bitcoin and other coins are not well seen in those parts as there is a law in place banning them.
RBI Deputy Governor T. Rabi Sankar said earlier this year that:
“Cryptocurrencies have no underlying cash flows and no intrinsic value, they are similar to Ponzi schemes and could be even worse. Banning cryptocurrency is perhaps the most advisable choice open to India.”
An article from 18 July this year that appeared in The Cryptonomist explains precisely the path that led to India’s assessment of risks and opportunities with regard to digital currencies.
In 2018, a heavily-worded memo warned of the great danger of crypto and banned their spread and use, except that it was later refuted by the Supreme Court of India, which had struck it down in 2020.
Until now the government has never stopped questioning the issue and if there is one thing that is clear pending a final opening or closing it has decided to take advantage of blockchain by actually seizing the opportunities it offers to coin its own CBDC.
The government is hoping for an international commission to deal with the topic of crypto, NFTs, etc. in depth and to be a kind of supranational regulator that will have the task of regulating and setting equal stakes at every latitude and longitude regardless of which states will comply with ad hoc laws.
“The destabilizing effect of cryptocurrencies on the monetary and fiscal stability of a country. I recommend framing the legislation in this area. Furthermore, the value of fiat currencies is anchored in monetary policy and their status as fiat money, however, the value of cryptocurrencies is solely based on speculation and expectations of high returns that are not well anchored,”
reports concerned the Indian finance minister.
Much like the other Brics countries, India is also hesitant about this world despite knowing and wanting to take advantage of the opportunities.
Nirmala Sitharaman adds that:
“Any regulatory or prohibition legislation can only be effective after significant international collaboration on the assessment of risks and benefits and on the evolution of taxonomy and common standards.”
In addition, the current taxation of cryptocurrencies in India does not place the country among the small group of attractive ones going so far as to tax assets by 30%.
This may not end there and taxes may be increased.
Coinbase and FTX are considering following the direction taken by the Indian government to exit the country’s market.
In any case, while we do not yet know what direction the country will go in, and amidst a major opening by Russia, its major trading partner and neighbor, the Reserve Bank of India is leaning decisively toward its own Central Bank Digital Currency (CBDC).
The Digital Rupee will be placed alongside its FIAT counterpart and will offer one more tool to the population, in the government’s mind helping Indians to approach this young world of crypto, understand it, and perhaps in the not-too-distant future embrace it.
Keeping up with the times and grasping the evolving tools that the market offers, riding the swings and trying to anticipate trends can make all the difference in such an interconnected and diverse world, and this has been well understood by the RBI and the government.