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  • Rushmi Rosairo

Monday Market Musings>>> India Joins the Rush to Create State-backed Virtual Currencies

Picture Credit: Naveed Ahmed

It seems as though Asia’s third largest economy would not be banning virtual currencies, on the contrary, they seem to be embracing it. According to Indian Finance Minister Nirmala Sitharam, the central bank expects to launch a digital version of the “Rupee” within the new fiscal year starting in April. The introduction of the digital Rupee will be using “blockchain and other technologies” according to Sitharam.

Digital payments in India have witnessed a steep growth in the past few years. Despite the COVID-19 pandemic and its economic impacts, the total number of digital transactions in 2019-2020 stood at 3,434 crore and grew at an annual grow rate of 44.1%. 48 billion digital transactions were reported in 2020 alone, and it was seen to be steadily increasing within that last year.

Coming out with a digital Rupee will surely lead to a wider understanding and adoption of virtual assets in the country, according to industry experts. Finance Minister Nirmala Sitharam said that the digital Rupee would; “Give a big boost to the digital economy. Digital currency will also lead to a more efficient and cheaper currency management system” in her budget speech. India has been unsure about cryptocurrencies for years, even going as far as to contemplate banning private cryptocurrencies as there was a cryptic proposal on the Indian parliament website hinting at plans to “prohibit all private cryptocurrencies”. Nonetheless, there has been a phenomenal increase in transactions in virtual digital assets. However, the magnitude and frequency of these transactions have made it imperative to provide for a specific tax regime, according to Sitharam.

Many central banks of other major economies are also exploring the possibility of introducing a state-backed virtual currency.

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“A 30% tax on income from virtual digital assets, while high, is a positive step as it legitimises cryptocurrencies”, said Avinash Shekhar CEO of crypto platform ZebPay. The legitimisation of cryptocurrencies would hopefully hint at a further acceptance towards crypto and nontangible tokens or NFTs across stakeholders in the country. “The announcement on the launch of a digital Rupee using blockchain will familiarise Indians with the benefits and efficiency of virtual currency. It will build an appetite for crypto, blockchain, the multitudes of innovations and employment opportunities that these technologies are capable of fostering”, said Shekhar.

There is a lot of room for improvement according to experts, but nonetheless India has taken a very positive step forwards when considering the financial and crypto ecosystem.

February 14th 2022 | 7:00 PM

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