India’s Reserve Bank (RBI) is treading carefully in the development of its digital rupee, according to a senior official with knowledge of the central bank’s digital currency (CBDC) pilot programs. While there’s evident progress, the RBI is actively exploring technological solutions to mitigate privacy concerns surrounding the digital rupee.
India to address CBDC privacy concerns
Despite maintaining a cautious stance on cryptocurrencies, the RBI clarified that it lacks a mandate to express a viewpoint on reducing a contentious tax that has been a point of contention within the crypto industry. The RBI has been a driving force behind the adoption of wholesale and retail CBDC since late 2022 when it initiated pilot programs.
Despite public statements indicating a lack of urgency in implementing a full-scale, retail CBDC and a reluctance to provide a specific timeline, recent events suggest an underlying sense of urgency. In the preceding month, the retail CBDC achieved a significant milestone of one million transactions in a single day, reportedly with assistance from various banks.
Notably, some banks, including HDFC Bank, Kotak Mahindra Bank, Axis Bank, Canara Bank, IDFC First Bank, and Union Bank of India, allegedly encouraged employees to deposit funds in CBDC rather than fiat currency, contributing to the achievement of this milestone.
The official overseeing the CBDC development highlighted the necessity for experimentation and substantial efforts to ensure the security of the digital currency. While the settlement aspect is considered straightforward, addressing latency remains a priority for the RBI.
Importantly, the central bank has introduced a new dimension to the ongoing discourse on privacy concerns associated with CBDC usage. Reports indicate that the RBI may request legal backing from India’s finance ministry to enact legislation allowing customers to delete transactions to maintain anonymity.
RBI’s stance and evolving regulatory landscape
Simultaneously, the central bank is actively exploring technological solutions to tackle the privacy issue. In a noteworthy revelation, the RBI, historically known for its opposition to crypto both domestically and globally, clarified that crypto taxation is not within its mandate.
This clarification implies that the RBI might not object if the Indian government decides to reduce the stringent taxes currently imposed on cryptocurrencies. The official emphasized that taxation matters fall under the government’s purview, reinforcing the RBI’s focus on its designated responsibilities.
The central bank has a historical context of attempting to ban cryptocurrencies, with effective prohibitions in place between 2018 and 2020 until a Supreme Court order overturned the ban. Since then, the RBI has consistently expressed concerns about cryptocurrencies in various forums, including the Group of 20, where India played a leading role in coordinating global regulation in the crypto space.
India’s central bank, the RBI, is proceeding cautiously with the development of its digital rupee, actively addressing privacy concerns and achieving notable milestones in CBDC transactions. While the RBI maintains a cautious approach to cryptocurrencies, it has clarified that taxation matters are beyond its mandate.
The RBI has also indicated a potential openness to the government’s decisions on reducing crypto taxes. The central bank’s historical opposition to crypto has transformed into a measured approach, reflecting its efforts to navigate the complexities of digital currency adoption in the country.
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