Explained: What is digital rupee, How cryptocurrencies will be taxed after Budget 2022

Union Finance Minister Nirmala Sitharaman said on February 1 that the Reserve Bank of India (RBI) will launch the Central Bank Digital Currency (CBDC) in 2022-23, the first official statement from the central government on the much-awaited digital launch. Tomorrow

FM said the introduction of CBDC would boost the digital economy and be based on blockchain technology. The Reserve Bank of India (RBI) had earlier indicated that CBDC is on the card even though the central bank is against the idea of ??allowing private virtual currencies. FM said the introduction of CBDC would further enhance India's position as a digital economy in terms of its world-class digital payment system.

1. What is CBDC?

Central Bank Digital Currency is a legal tender issued in digital form. It is similar to the Fiat currency but has a different appearance and is subject to one-to-one exchange with government-issued money. In other words, CBDC is the same as the legal currency we use. It's just digital. CBDC is not a crypto currency. This is the digital form of legal tender, and private virtual currencies are completely different. Private virtual currencies differ significantly from the historical concept of money.

2. How does the digital rupee work?

CBDC is the digital version of the Fiat currency and will facilitate transactions. The RBI report had earlier described the CBDC as a safe, robust and convenient alternative to physical cash. Depending on the various design choices, it may also take into account the complex nature of the financial instrument, the RBI report said.

3. Is CBDC a cryptocurrency like Bitcoin?

No. CBDC is not a private cryptocurrency. This is the digital form of legal tender, and private virtual currencies are completely different. Private virtual currencies differ significantly from the historical concept of money. They are not claims on goods or objects because they have no intrinsic value.

4. What is the opinion of RBI about CBDC?

Shankar said the CBDC has the potential to provide significant benefits such as less reliance on securities, higher volatility due to lower transaction costs and settlement risk. This will probably lead to more robust, efficient, reliable, regulated and legal tender-based payment options, Shankar said.

5. How does the RBI respond to the claim that private crypto is a gold-like asset?

The RBI had said that private virtual currencies do not represent any person's debts or liabilities. "There is no issuer. It is not money (certainly not currency) because the term has been historically understood," RBI Deputy Governor T Rabi Shankar said on July 22. This effectively means that, according to the RBI, no banking institution can hold. Private virtual variables responsible for assets or transactions.

6. According to RBI, what are the risks associated with CBDCs?

Shankar outlined some of the risks associated with CBDCs, saying that the availability of these currencies would make it easier for depositors to withdraw balances if there is stress on any bank. "Deposit flights can be much faster than cash withdrawals," Shankar said.

On the other hand, only the availability of CBDCs can reduce the fear of "runs" because depositors know that they can withdraw money quickly. One consequence of this could be that banks would tend to hold large amounts of liquidity, which could lead to lower returns for commercial banks, the deputy governor said.

7. What is the future of private virtual currencies in India?

It is not clear yet. The government is working on a bill to regulate cryptocurrency, but the bill is not scheduled for the current budget session. Until the government clarifies the regulation, the central bank is likely to remain in a wait-and-see mode in the case of private virtual currencies.