Cash-focused India is joining nations such as China in pushing forward with digital versions of their currencies as they look to optimise transactions and payments by harnessing new technologies. The country’s finance minister said the RBI would launch the digital currency in 2022, and the RBI’s new announcement indicates the imminent launch of a retail CBDC pilot in December 2022.
According to cointelegraph.com, the RBI is in the final stage of preparing the rollout of the retail digital rupee pilot. Notable participants include ICICI Bank, Union Bank of India, HDFC Bank, Kotak Mahindra Bank, Yes Bank, IDFC First Bank, the State Bank of India, and the Bank of Baroda. According to the same source, the pilot will eventually involve all of India’s commercial banks.
Banks that will participate in the trial will work with PayNearby and Bankit platforms to integrate the new payment options, and according to economictimes.indiatimes.com, they will test the CBDC among 10,000 to 50,000 users each. The same source indicates that the CBDC aims to complement current forms of money and not replace them. The CBDC was designed to function as an additional payment avenue for users.
As for the CBDC infrastructure, it will be supported by the National Payments Corporation of India (NPCI). In order to use the CBDC, both customers and merchants will have to download special wallets, but the RBI has revealed plans to fully integrate it with existing digital banking services. For now, the system relies on customers to request specific denomination e-rupee from their respective banks which will then be transferred to their CBDC wallet.
According to economictimes.indiatimes.com, India’s digital rupee will have debuted by early 2023, and in this context, the country’s finance minister introduced the provision for the taxation of virtual digital assets, bringing Cryptocurrencies & Non-Fungible Tokens (NFTs) under a tax net. As per Section 115BBH, earnings from the transfer of VDAs (Virtual Digital Assets) will be subject to a 30% tax.
Moreover, increased acceptance of digital payments by MSMEs is another trend that encouraged India to introduce a legal digital alternative into the market. The increasing acceptance of private VDAs also highlights the importance of having a central-bank-issued digital payment system.
As far as cybercrime is concerned, stricter regulation and improved cyber security at various levels will likely be a part of India’s CBDC strategy in order to prevent disruptions and minimise economic shock.
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