The news of the Indian Government announcing its plans to implement a tax on cryptocurrency and launching a central bank digital currency received a mixed response.
Some heaved a sigh of relief that cryptocurrencies were not banned from use as warned previously by Narendra Modi’s government while others were furious that they have to sacrifice 30% from every profit they earn from trading cryptos.
The decision of the financial authorities in India to join the bandwagon along with other nations to expedite the entry of diverse currency worldwide monetary system is inevitable. Cryptocurrency will have a strong foothold in this betting.
As per the report in Barron’s, the US government the reigning country in the existing mono-currency international monetary system is looking to consider new crypto rules for national security.
The way the US handles this security threat is to be noticed. Whether they adopt to openly motivate financial discoveries or defend the current centralized system is a million-dollar question.
Tax vs Legality
It is important to accept the fact that the steps taken by India to impose a tax on cryptocurrency and delay the regulatory measures are not ideal for the nation’s crypto sector’s temporary outlook.
The declaration by Nirmala Sitharaman – our Finance Minister contained no serious opposition as she delivered a speech only regarding the exceptional increase in transactions in the virtual digital services. This made it clear that resorting to a particular tax regime is of vital importance.
Overall, there is wider visibility that crypto can be adopted in India without much hindrance. This will be put into action as part of another declaration from the Finance Minister’s speech: proposal for a CBDC (Central Bank Digital Currency).
Importance of CBDC
We can assume that similar to China, the Indian Government also believes that when a CBDC is developed, it will reduce the growth of cryptos such as bitcoin.
There is an existing increasing demand for their domestic currencies, so there is a thought process that transforming those government currencies digitally will equalize the sole attractive competition provided by the foreign digital currencies.
This thought process contains a flaw. It revolves around the idea that there is a constant demand for both currencies, and when the demand for one currently increases, the currency must fall. It fails to predict the impact of the CBDC’s on a broader crypto ecosystem.
CBDC to amplify crypto?
Once the stablecoins or CBDC’s are employed for payments in services such as supply chain management, NFT that are Blockchain-based technologies – it will amplify the broader crypto ecosystem – the distributed metaverse as it turns dominant.
This will lead to an increase in demand for cryptocurrency and crypto tokens that Web3 and DeFi need for governing. When a CBDC fund mixture increases the demand for Non-fungible tokens, it will lead to an increase in the transactions of smart contracts on Solana or Ethereum platforms which will, in turn, increase the demand for SOL and ETH.
Endgame for dollars?
CBDC’s programming nature will pave the way for direct settlement between persons holding the currencies of two different countries which will nullify the requirement of an intermediate reserve currency while dealing with international trades.
This can come to an end when the SWIFT network – Society for Worldwide Interbank Financial Telecommunication is disturbed. This will in turn lead to the reduction in demand for dollars and decrease the power of Wall Street resulting in the control of Washington’s abilities to exploit the US currency’s unreasonably high privilege to snoop transactions of other countries and assure inexpensive foreign finance for the consumption routine of Americans’.
The US can respond to this situation in two ways:
The first method would be to do nothing and stay with the hopes that the current dollar-centered foreign monetary system will prevail weighing on its self-dominance. Or it could turn to the Federal Reserve to issue its native CBDC and embed the current banking method dominated by Wall Street.
This will give rise to a situation in which digital currencies will compete against one another and the non-existence of a single reserve currency. This will lead to more financial uncertainty where there is a wider possibility of the governments engaging in either currency or physical wars resulting in political, economic, and social instability.
The other option is encouraging the development of non-government US dollar-supported stablecoins that flow freely worldwide across scattered Blockchain rules. This will lead to an increased demand for dollars by foreign people since it will be available instantly.
Based on this situation the US along with its transparent free trade values will become more influential worldwide.
With this, the Blockchain currencies like bitcoin, ether, and stablecoins will flourish. The flow of dollars freely across the globe will pave the way for a broader Blockchain, Web3 ecosystem, and cryptocurrency that will spark off the call for tokens.
India and similar governments are quickening the pace for cryptocurrency’s expansion one way or another.
