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Cryptocurrencies have yet to pass the test to become fiat currency, said Chief Economic Adviser V Anantha Nageswaran on Thursday, adding that unlike fiat money, cryptos cannot satisfy basic requirements such as having store value, widespread acceptability and unit of account.

“As an alternative to fiat currencies, cryptocurrencies have to satisfy many purposes. It has to be a store of value, it has to have widespread acceptability and it has to be a unit of account. In all these cases the new innovations such as crypto or DeFI (decentralised finance) are yet to pass the test," Nageswaran said at an Assocham event, adding that at the same time it would be difficult to regulate them.

Finance Minister during her Budget speech in February had announced the proposal of taxing gains arising out of virtual digital assets at a flat rate of 30% irrespective of the individual’s income tax slab rate. In addition, a 1% tax deducted at source (TDS) will be applicable on transfer of such assets over a certain threshold.

Sitharaman also proposed to introduce Digital currency or Digital Rupee, using blockchain and other technologies, to be issued by the Reserve Bank of India (RBI) starting 2022-23, to give a big boost to digital economy, leading to a more efficient and cheaper currency management system.

Last month, RBI in its annual report said that it is proposing to adopt a graded approach towards the launch of central bank digital currency (CBDC) in the country to ensure conformity objectives of monetary policy, financial stability and efficient operations of currency and payment systems.

The central bank said it has been exploring the pros and cons of introduction of CBDC in India and the appropriate design elements of CBDCs that could be implemented with little, or no disruption are under examination.

India has had a hot-and-cold relationship with digital currencies in the past few years. In 2018, it effectively banned crypto transactions, but the Supreme Court struck down the restriction in March 2020.

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