Digital Rupee by RBI - All you need to know

The Union Budget brought in some bad news for the crypto investors in India. Tgains from crypto will be taxed at 30%. The losses cannot be compensated for the profits.

The bigger update by the Finance Minister was that India should have its own digital currency. Tdigital currency or Central Bank Digital Currency (CBDC) is expected to be a big boost to the digital economy. Let us understand everything about it.

What is CBDC?

The Central Bank Digital Currency is a legal tender issued by the central bank (Reserve Bank of India) in a digital format. It is a combination of fiat currency and other digital currencies, we have in circulation currently. Investors can exchange fiat currency with CBDC and visa-versa. Currently, digital currencies are not regulated by any central bank. This one will be regulated, and that is a major difference. 

The RBI will launch it in the next financial year, and it will be backed by blockchain technology.

How is CBDC useful?

CBDC will provide users with convenience and security of digital as well as the regulated, reserve-backed circulation of the traditional banking system. At present, when investors invest in digital coins, they are not sure of their future - they are not legal tender. With this new CBDC, investors can own digital coins backed by the central bank.

It will also reduce printing costs for the Reserve Bank of India and will also be a cost-effective payment system. The RBI has on several occasions flagged concerns of money laundering, terror financing, tax evasion, etc. with private cryptocurrencies like Bitcoin, Ether, etc. With its own Digital Rupee, it plans to manage the above issues in a better way.

No clarity on its intrinsic value

As of now, there is no clarity on how the intrinsic value of Digital Rupee is determined. There are several models proposed by technology experts on how it could work. Some experts believe they are not going to be commodities or claims on commodities as they have no intrinsic value. Some claims that they are akin to gold clearly seem opportunistic. We will have to wait for better clarity for it.

The announcements on the taxation and the introduction of crypto express the government's intention on cryptocurrencies and other virtual currencies. Investors should understand the risk and reward of investing in digital assets and act accordingly.