India to Launch RBI-Backed Central Bank Digital Currency
Union Minister Piyush Goyal announced that India will introduce its own digital currency, which will be backed by a Reserve Bank of India guarantee. The move is aimed at simplifying and speeding up transactions, reducing the use of paper currency, and ensuring full traceability. Goyal contrasted this with private cryptocurrencies, stating that while they are not banned, they are heavily taxed to discourage use due to their lack of sovereign backing and inherent risks.
Unpacked:
India’s digital currency, the digital rupee, is issued and backed by the Reserve Bank of India, ensuring sovereign guarantee and stability. In contrast, private cryptocurrencies like Bitcoin are decentralized, lack government backing, and are considered riskier due to price volatility and regulatory uncertainties.
The digital rupee aims to simplify and speed up transactions, reduce reliance on paper currency, ensure full traceability, and support both domestic and cross-border payments. It is also expected to help reduce corruption and subsidy leakage through direct benefit transfers using traceable digital records.
India began with pilot projects for both wholesale and retail use, involving selected banks and cities. These pilots test settlement of government securities, retail payments, and integration with existing banking infrastructure, while also addressing technological and scalability challenges before nationwide adoption.
The Indian government imposes heavy taxes to discourage the use of private cryptocurrencies due to concerns about volatility, fraud, and lack of sovereign guarantee. However, rather than banning them completely, the government prefers regulation through taxation to monitor activity and mitigate risks.