Indian regulators are contemplating a ban on cryptocurrencies such as Bitcoin and Ether while advocating for the adoption of the digital rupee.
On Oct. 22, the Hindustan Times reported that two officials who are knowledgeable about the situation stated the government has consulted with significant institutions and regulators regarding private cryptocurrencies, including stablecoins, and has determined that the associated risks surpass the potential benefits.
One of the officials stated that Central Bank Digital Currencies can “perform all the functionalities of cryptocurrencies,” adding that “CBDCs provide more advantages compared to cryptocurrencies but come without the risks tied to private cryptos.”
While the specific entities involved in the consultation were not revealed, it has been reported that these discussions took place ahead of an upcoming discussion paper expected from the government on the subject.
Earlier this year, Ajay Seth, India’s Secretary of Economic Affairs, disclosed that an inter-ministerial group—including the Reserve Bank of India, the country’s central bank, and the Securities and Exchange Board of India, the market regulator—was preparing a discussion paper to clarify India’s official position on cryptocurrencies.
The paper, initially scheduled for release in September, has experienced delays, and it is uncertain if this is the same document being referenced.
At that time, Seth cited the IMF-FSB synthesis report from July 2023, which counseled against an outright prohibition on digital currencies. Instead, the report recommended a balanced regulatory approach, which India’s finance ministers and central bank governors, along with other G20 nations, adopted later that year.
Nonetheless, the report also emphasized that countries have the discretion to enforce stricter regulations.
“While the IMF-FSB synthesis paper suggests a minimum threshold for regulation, it does not prevent any nation from imposing higher restrictions, including a total ban,” the second official noted.
A conclusive decision on this issue will follow additional consultations, according to the report.
Despite the negative outlook on cryptocurrencies, the official expressed optimism about blockchain technology, citing several socially advantageous applications, such as enhancing financial inclusion, tokenizing government bonds, and improving the efficiency of targeted subsidies.
India’s history with crypto
India’s journey with cryptocurrencies has been tumultuous. In 2018, the RBI prohibited banks from dealing with crypto transactions, but in 2020, the Supreme Court annulled the ban, offering the crypto sector a renewed opportunity.
Since then, regulatory discussions have ebbed and flowed, with the prospect of a ban still present as India assesses its own Central Bank Digital Currency.
Last week, RBI Governor Shaktikanta Das reiterated the benefits of CBDCs while expressing renewed concerns about cryptocurrencies. The RBI holds a firm belief that digital assets like Bitcoin could threaten the country’s economic stability.
Indian Finance Minister Nirmala Sitharaman also maintains a strong opposition to cryptocurrencies, asserting that private cryptocurrencies should not be regarded as legal tender, although she does support their regulation.
Meanwhile, the securities regulator SEBI has pushed for a multi-agency strategy in crypto legislation, submitting recommendations to the finance ministry earlier this year.
India has yet to establish a formal regulatory framework for cryptocurrencies, but it has implemented a 30% tax on crypto profits alongside a 1% TDS. Regulators have also tightened their oversight of the crypto trading market, as the Financial Intelligence Unit now mandates that crypto service providers obtain licenses.
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