- The Indian government will roll out a digital currency over the coming year, the finance minister said.
- India previously suggested banning crypto, but now plans to regulate and tax it, the minister said.
- India is a major digital trading hub, with an estimated 15 to 20 million crypto investors.
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India appears to be warming up to cryptocurrencies, with an announcement by the finance minister on Tuesday of plans for a digital currency rolled out by the central bank, along with a framework to regulate and tax crypto assets.
Finance minister Nirmala Sitharaman, as part of her annual budget speech, said the central bank would aim to roll out a digital rupee in the coming fiscal year. This marks a major U-turn for the government, which had signaled it could ban cryptocurrencies outright, until the upper house of parliament clarified that digital assets should be kept on exchanges and monitored correctly by a market regulator.
"The introduction of a central bank digital currency will give a big boost to the digital economy. Digital currency will also lead to a more efficient and cheaper currency management system," Sitharaman said.
According to its budget plans, the government will impose a 30% tax on income from cryptocurrencies and other digital assets, as well as apply a 1% tax deduction at source on payments related to purchasing such assets.
Central bank digital currencies (CBDCs) offer a centralized, official alternative to pure cryptocurrencies. Major central banks, such as the Federal Reserve, the Bank of England and the European Central Bank are all looking into developing their own digital currencies.
But it is the emerging economies where progress is actually happening. China already has a digital yuan in circulation through various pilot programs, putting it several years ahead of G7 central banks in this respect.
The effect of India creating an official digital currency, along with a framework for crypto trading and investment could be significant. The 2021 Global Crypto Market Adoption Index from Chainalysis showed Asia is leading the way in global crypto adoption and India is second only to Vietnam. It is estimated that there are between 15 and 20 million cryptocurrency investors in the country.
Cryptocurrency markets were up slightly on Tuesday, gaining some respite from the almost-unbroken pressure during January, when investors booked profits on some of 2021's big winners. Bitcoin and ether posted gains of 4% and 9% over the past 24 hours respectively, according to CoinMarketCap.