Indian Digital Rupee to be Held in State-Backed Wallet
The anticipated digital rupee that will be issued by the Reserve Bank Of India will not be held in private wallets, but will expose all transactions to government scrutiny.
The Indian government will launch a state-backed wallet to hold its digital currency. The digital currency is likely to be launched in the next financial year, although there is no exact date yet. The digital currency will likely be an electronic form of fiat currency. Any of the digital currency issued would be included in the currency in circulation. The digital currency will be issued in units similar to regular fiat.
Unlike private wallets, the government-issued wallet would allow the government to be privy to all transactions, which could possibly alleviate the fear that the funds could be used for illicit purposes, such as money laundering and terrorism financing. A government source said that people usually transfer funds to third-party wallets, from which merchants are paid. Now the digital rupee would be transferred without a middleman, using a sovereign-backed currency. The Indian citizen could use his phone to pay for goods and services.
Finance Minister keen on digital rupee
In the recent unveiling of the 2022-23 Budget, Indian Finance Minister Nirmala Sitharaman said, “Digital Currency will also lead to a more efficient and cheaper currency management system.” She did not elaborate on the precise regulation that will be accompanying the rollout of the e-rupee. It is important to note that central bank digital currencies are not the same as cryptocurrencies. The digital rupee blockchain is being developed by the Reserve Bank of India (RBI). The RBI is vehemently opposed to “private cryptocurrencies” in the light of national security and fiscal stability.
The Finance Minister also recently imposed a 30% tax on all crypto transfers and has also made it clear that cryptocurrencies will never be seen as legal tender. The only allowable deduction from cryptocurrency gains would be the cost of acquiring the crypto.
High crypto tax draws criticism, fuels petition
The Minister’s announcements allayed fears that crypto would be banned, but drew criticism from others, who opine that 30% is too large a percentage. A petition regarding this critique has attracted over 52,000 signatures. The critics say that crypto activity provides employment and call for a revision of the 30% proposal. They also want the crypto tax to be treated the same as that paid for stocks.
Notably, no mention has been made of how to prevent illicit activity using cryptocurrency to launder money and finance terrorism, unlike the Internal Revenue Service in the U.S., which has proposed more comprehensive record-keeping and identity disclosures. Many crypto exchanges in India, such as WazirX, could come under scrutiny should any illegal activity occur under their watch.
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