What are Digital Currencies?

There is a new topic in the town. There is going to be a new type of currency that will revolutionize digital payments.

You might be aware of the ongoing buzz in the digital world. No matter how much you refresh your social media feed, there is always one post dedicated to cryptocurrencies. Plus, this year’s budget is significant to this field. India’s Finance minister, Nirmala Sitharaman, shared two vital points in the budget. First, the nation has plans to tax the income generated from the crypto world. The second is the introduction of digital currencies.

Now, we understand you might find it contradictory. On one side, it might look like India is trying to demotivate the crypto investors. But at the same time, motivating citizens for the digital rupee. Though the reason for introducing both these technologies is the same, there’s a difference.

Today, we are going to discuss why the Reserve Bank of India is introducing a digital rupee. But also ask Indian citizens to be cautious of cryptocurrencies.

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So, without wasting time, let’s start with ‌the topic of the hour.

What is digital currency?

In the fiscal year 22-23, the Finance minister shared the news on introducing the digital rupee. There was an exponential rise in digital transactions after 2016’s demonetization. This is coupled with a sustained interest in cash used for small value transactions. With this move, the government aims to popularise digital currency.

On that note, this move will also cut the cost of printing, transporting, storage, and distribution of the currencies. Additionally, the government also realized its efficiency in high cash-based economies. Plus, it will act as a substitute for private crypto and virtual currencies.

Indian Government actions in Cryptocurrencies

The Indian government and the reserve bank understood the rising popularity of the crypto trade. Budget 2022 had two crucial points regarding virtual currencies.

Tax

  • First, the nation intends to levy a 30% tax on any income generated from crypto transactions. For instance, Bitcoin, NFTs, etc.
  • Second, the government will also levy a 1% tax at the source of transactions.

Digital Rupee

The Indian government intends to introduce a digital currency called Digital Rupee. It is a central bank digital currency that will be introduced in this financial year. We have covered this topic. To know more, click on the highlighted word and jump to the section below.

This move has created a series of questions in the minds of Indian citizens like:

  1. How much do citizens have to pay taxes?
  2. Whether the government ban crypto?
  3. How will NFTs fit into India’s regulatory framework?

and the most important question,

Differences between digital currencies and cryptocurrencies
  1. Digital currency is centralized, Cryptocurrency is decentralized
  2. have intrinsic value, have no intrinsic value
  3. medium of redressal, no medium
Benefits of digital currencies

At first, this currency will fulfill the need for interbank settlements. Also, it will enable a real-time and cost-effective global payment system. For instance, while importing and exporting, the payments will be in digital dollars that would not require Federal reserve for settlement. Also, time zone differences would not affect currency settlement.

And that is all, folks.

This blog was just a short and simplified overview of digital currencies, especially regarding the Indian digital rupee.

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