The Reserve Bank of India has proposed using a graded approach for introducing digital currency in the country, as per its annual report for FY 2021-22.
The RBI is engaged in introducing CBDC, the central bank digital currency in India. The report stated that it needs to conform with the stated objectives of financial stability, monetary policy, and efficient operations of payments and currency systems.
“The Reserve Bank of India proposes adopting a graded method to introduce CBDC, going step-wise through stages of PoC, proof of concept, pilots, and the launch,” the report noted.
Reacting to the report, Amar Patnaik, BJD National Spokesperson and Rajya Sabha MP, said that the government should adopt the proposed approach even in the private crypto market.
“Concerning a graded approach, I said exactly the same about six months ago. The RBI should have activated its regulatory sandbox at least two years ago and worked on this instead of pushing for a blanket ban. Even in the private crypto space, the government should follow the same approach,” he wrote in a tweet.
The RBI Examining CBDC in India
The Reserve Bank said that it has been exploring the pros and cons of introducing CBDC in India in the annual report.
The design of CBDC needs appropriate elements that can be implemented with little to no disruption under examination.
RBI is currently exploring the various design features of a CBDC that can co-exist with the existing fiat system without causing disruptions based on this need. The Indian Finance Bill 2022, which mandated a 30% crypto tax on unrealized gains, also establishes a legislative basis for creating a digital rupee.
At the proof-of-concept stage, RBI is validating the feasibility and operation of launching a CBDC midway through 2022.
The government had introduced digital currency in the Union Budget 2022-23. The RBI Act, 1934, was also amended appropriately in the Financial Bill 2022 to give a legal basis for the implementation of CBDC.
Crypto Dollarization of Indian Economy
When presenting the budget for 2022-23, the finance minister of India, Nirmala Sitharaman, proposed the launch of a digital currency. It would give the digital sector a “huge boost,” she said.
However, on 17th May, RBI officials reportedly issued a warning against cryptocurrency adoption, citing the dangers of the “dollarization” of the Indian economy.
According to the Economic Times, prominent RBI officials, including governor Shaktikanta Das, have voiced concern about the U.S. dollar’s dominance in the cryptocurrency sector.
“Since virtually all crypto asset classes are dollar-denominated and provided by foreign private companies, they risk dollarizing a section of our economy, which would be harmful to the country’s national interests.,” said an anonymous official.
“Crypto will severely impede the Reserve Bank’s ability to set monetary policy and control the country’s monetary system,” they cautioned.