It is the second quarter of the year, and India is currently assessing the possibility of launching a CBDC.
The Reserve Bank of India (RBI) looks at India’s decision to introduce a central bank digital currency (CBDC). And to achieve this, the RBI proposes a three-step approach to launching the CBDC.
The Indian central bank will do this to avert any disruption to the mainstream financial sector.
In a budget discussion in February, India’s finance minister, Nirmala Sitharaman, talked about the launch. According to Sitharaman, the coming of a digital Rupee will boost India’s digital economy.
RBI’s Position on CBDC
The RBI, also known as India’s central bank, disclosed the next step it is about to take. The RBI is exploring the pros and cons of a CBDC in India. In a report released on Friday, the RBI stressed the need for the digital Rupee to conform to the country’s monetary policy.
Furthermore, the Indian central bank noted the need to ensure balance within India’s financial framework. Based on what is needed, the RBI is currently looking at the various elements of a CBDC.
Additionally, it wants to develop a CBDC capable of existing alongside the country’s fiat currency without disruption. Moreover, the Indian Finance Bill 2022 introduces a 30% crypto tax on unrealized gains.
This formed the basis for the introduction of the digital Rupee. The coming of the CBDC will usher in a new phase in the Indian crypto space.
Going by the proposed plan, the RBI adopts a step-by-step approach to introducing a digital Rupee. The stages include the proof of concept, the pilot, and the launch.
Meanwhile, the world is halfway through 2022, and the RBI is in the proof of concept stage. The regulator is in the process of verifying the procedures for launching the CBDC.
RBI Against Crypto Adoption
On May 17, Cointelegraph reported that RBI officials warned against the adoption of cryptocurrency, citing high risks. The RBI added that the Indian economy faces the risk of dollarization if crypto adoption is sustained.
As reported by Cointelegraph based on the Economic Times report, key RBI officials are concerned with the dollar’s role in cryptocurrency. According to the report, the crypto industry is dominated by the U.S. dollar and is issued by foreign entities.
According to the RBI officials, the Indian economy is at the risk of dollarization and is against the country’s sovereignty.
Furthermore, the RBI affirmed that cryptocurrencies would undermine the RBI’s efforts in its monetary policy. Additionally, regulation of the country’s monetary system will prove difficult.
By making the digital Rupee a priority, India’s central bank aims to make digital asset transactions centralized. Issuing the CBDC means that the RBI can control the direction of transactions in the digital asset.
Cryptocurrencies are highly decentralized digital assets, and the RBI fears losing its grip on India’s financial sector. It will be interesting to see how the RBI will launch the CBDC and how the CBDC will perform in the coming years.