Budget 2022: India to join a small group of countries with digital currency

Till now, only nine of the 91 countries have launched a central bank digital currency

On Tuesday, in her Budget speech, the finance minister announced that India shall launch a digital currency in 2022-23.

“It is, therefore, proposed to introduce Digital Rupee, using blockchain and other technologies, to be issued by the Reserve Bank of India starting 2022-23,” said FM Nirmala Sitharaman, pointing out that a digital currency will give a boost to the digital economy.

India shall be a part of a small group of countries with a digital currency. Data from Atlantic Council shows that until January 2022, only nine of the 91 countries which had envisaged a plan to launch digital currency had done so. Moreover, 41 were in the research phase, and 14 had piloted the project.

In October last year, Nigeria had become the ninth country to launch a central bank digital currency called e-Naira. The central bank governor had announced that 500 million eNaira ($1.21 million) had been minted and were accessible to people with bank accounts linked with the country’s bank identity network.

UAE, which is still in its pilot phase, is looking at developing two products, a central bank digital currency and a multiple central bank digital currency bridge along with China, Hong Kong and Thailand for easing transactions.

An inter-ministerial committee formed in November 2017 by the finance ministry had recommended the adoption of CBDC in India.

While the research arm of the Reserve Bank of India, IDRBT, had discussed the development of a central bank digital currency in 2018, it was only in March 2021 the RBI had hinted towards the launch of a CBDC. In July 2021, deputy governor T Rabi Shankar, at a webinar, had discussed the pros and cons of digital currency. RBI governor had said that the central bank should launch pilot projects by the end of December.

The development of CBDCs has picked up pace in the last few months. Seventy-four countries were exploring a CBDC until April last year; now, 90 countries are exploring a CBDC. In May 2020, only 35 countries were looking at developing a CBDC.

The number of projects with cross border payment tests had also increased. Besides, UAE, China, Hong Kong and Thailand, Project Dunbar with South Africa, Singapore, Malaysia and Australia had tested cross border payments.

The finance minister had also announced a tax on virtual assets in the Budget. The number of users with digital currencies has doubled in just the first half of the year from 100 million to over 200 million between January and June 2021.