India’s Digital Rupee (Central Bank Digital Currency) must have anonymity built into it to avoid surveillance, Infosys Co-founder Nandan Nilekani told Economic Times. He added that it will be concerning if all payment transactions are recorded and visible.
Nilekani also said that the country was on the right path by acknowledging the concept of digital assets and taxing them at 30 percent. He said that it was a tacit way of confirming that cryptos are not currencies but commodities, as they store value, which one can buy and sell.
“The idea is that India takes a lead both for wholesale transactions as well as for retail. The existing rails that India has laid (can) be used to accelerate the digital rupee”, (which) is “a better option than creating stablecoins,” he was quoted as saying.
The 66-year-old warned that stablecoins will be unstable if ever there is a run on that currency because people are not clear about whether the reserves behind those stablecoins are adequate in case everybody wants to convert it to real dollars, ET reported.
Nandan Nilekani has worked closely with the government on Aadhaar and is part of several government committees. His comments raise an important question about whether CBDCs will be misused by the government to target dissidents and if privacy in electronic payments has to be compromised for regulatory compliance.
It must be noted that the Indian government is currently testing various use cases of CBDCs and has not yet released details of its plan to the public. It remains to be seen whether the RBI, which is spearheading the project, will pay heed to Nilekani’s comments. However, it is unlikely that the government will pass on the opportunity to track payments given its concerns over the privacy offered by cryptocurrencies for transactions related to smuggling and other illegal activities.
‘Digital Rupee will be exchangeable with physical cash’
Prime Minister Narendra Modi recently revealed that CBDC, which will be issued by the Reserve Bank of India, will be exchangeable with the physical rupee, in a virtual address to Bharatiya Janata Party (BJP) members on February 2. Modi added that digital payments of all kinds will be safe and free of risk because of CBDCs.
“Digital rupee will be just like physical rupee and will be issued by the RBI. It will be completely controlled and monitored. The development of the Global Digital Payment System will also be aided by this project,” Modi said while suggesting that problems in printing cash, its handling and distribution will be addressed by CBDCs.
PM Modi’s remarks coupled with the budget announcement by Finance Minister Nirmala Sitharaman, reveal the government’s enthusiasm over CBDC’s prospects which is being rumoured to be issued in early 2023.
Provision for CBDC in 2022-23 Budget
The Indian government laid down a timeline for the first time in its 2022-23 fiscal budget for the official roll-out of CBDCs. Digital Rupee using blockchain technology will be issued by the Reserve Bank of India (RBI) starting 2022-23, Finance Minister Nirmala Sitharaman said in her Budget 2022-23 speech in Parliament.
“Introduction of Central Bank Digital Currency (CBDC) will give a big boost to the digital economy. Digital currency will also lead to a more efficient and cheaper currency management system.” – Nirmala Sitharaman
The project can be viewed as an attempt by the government to take advantage of the benefits offered by blockchain technology and to also discourage the use of crypto like Bitcoin and Ethereum.
Why is there a delay in rolling out CBDC?
The government first announced its plans to roll out CBDCs in January 2021 to avoid damaging consequences of cryptocurrencies. The progress has been sluggish since then. The RBI governor Shaktikanta Das said that the central bank needs to safeguard CBDCs from risks of digital frauds and cybersecurity before rolling them out in 2021. He was speaking at a media interaction after announcing RBI’s monetary policy last year.
Das explained that the central bank had major concerns around fake Indian currency notes a few years ago. “Similar things can also happen when you are launching CBDC,” he asserted, adding that the RBI will be careful and take preemptive steps to prevent fraud.
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