Digital rupee

The government has set the ball rolling for the digital rupee with the announcement of the Central Bank Digital Currency (CBDC) in the Finance Minister’s Union Budget speech. The CBDC issued by the Reserve Bank of India (RBI) will be recognised as a currency, while all private cryptocurrencies and other virtual digital assets would be taxable. With nations such as China and Nigeria having already taken the plunge, their experience can help India prepare a robust regulatory mechanism for digital currency. The digital finance ecosystem is growing by leaps and bounds in the country. In 2020, the first year of the pandemic, India recorded 25.5 billion real-time online transactions, way ahead of China (15.7 billion), South Korea (6 billion), the UK (2.8 billion) and the US (1.2 billion). Real-time payments/transactions — those which are initiated and processed instantly — are clearly here to stay, with the disruptions caused by the pandemic during the past two years acting as a strong trigger for their proliferation.

The government has been understandably treading with caution on new-age currencies, which might pose a threat to India’s economic and financial stability if these are misused or mishandled. The RBI has been stressing the need for detailed discussions on virtual currencies. The major crypto challenges include hawala dealings, investments worth billions of dollars routed abroad, evasion of capital gains tax and low awareness among the people. No wonder a legislation on crypto/digital currency is still in the works.

Globally, virtual financial instruments are gaining ground and India cannot afford to miss the bus. How the digital rupee fares against popular, decentralised cryptocurrencies such as bitcoin will be critical to the success of Digital India, a flagship programme that envisages transforming the country into a ‘digitally empowered society and knowledge economy’. Close monitoring and stringent regulation by the RBI can inspire confidence among investors about digital transactions and help them keep fraudsters at bay. Making the most of the virtual finance ecosystem can bring Indian economy closer to the $5-trillion dream.