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The CBDC report published by India’s central bank may not be good news for the Indian cryptocurrency market.
Crypto was such a hit in India in 2021 that it made the country the fastest growing market for the asset class, surpassing the MENA region and even Europe.
At one point, the country’s market jumped by 641% in just 12 months and was projected to surge even more.
But everything changed in April this year as the government of India started to tighten its grip on crypto, imposing tax on transactions involving the asset which led to the collapse of local exchanges.
Some thought this might have something to do with the nation’s plan to eventually have its own CBDC.
Country officials said the move was made to provide a window for the formalization of cryptocurrencies but what it accomplished so far is to make crypto trading in India insanely expensive.
But it turns out, the country is just starting to pound on digital assets and the Reserve Bank of India might just deliver the finishing blow.
Reserve Bank of India Eyes CBDC
It is no secret that the Reserve Bank of India has been eyeing to launch a project for its CBDC – a development which has now been confirmed by the bank’s FinTech Department report released on October 7.
Both retail and wholesale variants of the CBDC is being considered by the financial institution for consumers and businesses as well as interbank and wholesale transfers.
The report provided an insight as to how the process will unfold, starting with the building of the currency by technological partners selected by a working group.
Once the CBDC is ready, it will be tested in a sandbox environment and will be exposed to stressful situations. The functionality and overall design of the digital currency will be assessed.
If the designed CBDC passes all the testing, a pilot release will then follow.
An Apparent Aversion To Cryptocurrencies
For the development of both retail and wholesale variant of the CBDC, the RBI is making sure it can properly identify its owners or holders, much like the physical fiat money.
This move seems to attack one of the selling points and advantages of digital currencies like Bitcoin, Ethereum, XRP, among many others – privacy.
Moreover, as the government recently imposed hefty taxes on crypto transactions in India, people there will be put into a position to instinctively choose the CBDC in order to avoid the taxes.
“It is the responsibility of central bank to provide its citizens with a risk-free CBDC which will provide the users the same experience of dealing in currency in digital form, without any risks associated with private cryptocurrencies,” the RBI said in quotes by Reuters.
India might not have made the move to ban cryptocurrencies altogether, but the CBDC report might be an indication that the country is slowly shutting the door on digital currencies not issued by its government.
BTC total market cap at $374 billion | Featured image from Forbes, Chart: TradingView.com