Central Bank Digital Currencies in India: The end of private cryptocurrencies?

India Prepared for the Ban on Private Cryptocurrencies in Favor of Central Bank Digital Currencies (CBDC)

India, being one of the largest cryptocurrency markets in the world, is approaching the moment of completely banning private cryptocurrencies like Bitcoin or Ethereum. This decision aims to regulate the risks in the rapidly changing market there. The Indian government prefers solutions based on Central Bank Digital Currencies (CBDC), which provide all the benefits associated with cryptocurrencies while eliminating potential instabilities and possibilities of abuse.

CBDC as a Secure Alternative in India’s Financial System

Central Bank Digital Currencies do not necessarily have to achieve the financial inclusion goals often associated with private cryptocurrencies. However, the Reserve Bank of India (RBI) supports the concept of CBDC as a secure alternative that can still contribute to achieving financial inclusion goals typically associated with cryptocurrencies.

Efficiency and Safety – e₹ as the Digital Rupee

In 2022, India introduced the digital rupee marked as e₹. The implementation of this innovation has garnered significant interest, involving over 5 million users and 16 partner banks. According to RBI Governor Shaktikanta Das, e₹ is expected to bring more efficient and securely delivered financial services for resources and vulnerable social groups, opening up new opportunities in the local market.

The Impact of CBDC on the Global Financial Landscape

The development of Central Bank Digital Currencies can strengthen India’s position in the global financial landscape. Innovations in this field have the potential to bring greater economic inclusion and financial transformation, contributing to the dynamic growth of this sector on a global scale.

Strict Tax Policy and the Possibility of Further Regulation

India has also looked into taxation issues related to cryptocurrencies, classifying them as Virtual Digital Assets (VDAs). A tax rate of 30% on profits and 1% TDS on transactions exceeding the value of 10,000 INR has been introduced. There is a possibility that India will take further steps in terms of regulation, including even a complete ban on private cryptocurrencies, following the synthesis work by the Financial Stability Board and the International Monetary Fund in 2023.

The Superiority of Central Bank Digital Currencies

CBDCs remain India’s favored direction in the development of the financial sector. They can serve as a template for regulatory decisions concerning cryptocurrencies, depending on the consultation process conducted and the analysis of potential benefits and risks associated with different models of digital currencies.