Indian regulators are reportedly moving closer to a potential ban on cryptocurrencies like Bitcoin and Ether as the government pushes for the adoption of the digital rupee. The move comes amid ongoing consultations with key institutions and regulatory bodies, raising concerns about the future of private digital currencies in the country.
According to local media outlet The Hindustan Times, officials familiar with the matter revealed that discussions on the subject had been held with various stakeholders. The consultations focused on the risks associated with private cryptocurrencies, including stablecoins, and how they compare to Central Bank Digital Currencies (CBDCs). One official highlighted, “CBDCs can do whatever cryptos do,” adding that “CBDCs have more benefits than cryptos, minus the risks associated with private cryptocurrencies.”
The consultations were reportedly carried out ahead of a forthcoming discussion paper that the Indian government is expected to issue, outlining its official stance on cryptocurrencies. While the paper was initially set for release in September, delays have pushed its expected publication date further, raising questions about whether this will be the final policy proposal.
Ajay Seth, India’s Secretary of Economic Affairs, had earlier stated that an inter-ministerial group, including the Reserve Bank of India (RBI) and the Securities and Exchange Board of India (SEBI), was working on a comprehensive discussion paper to clarify the government’s position. The ongoing debate has been heavily influenced by the IMF-FSB synthesis paper from July 2023, which recommended against an outright ban on cryptocurrencies but left room for stricter national regulations.
“Whilst the IMF-FSB synthesis paper proposes to have a minimum threshold for regulation, it doesn’t stop any country from adopting higher restrictions, including a complete ban,” a second official noted.
As the government moves toward a final decision, discussions continue on whether to regulate or prohibit private cryptocurrencies entirely. Despite the uncertainty, blockchain technology, the underlying infrastructure for most cryptocurrencies, is being recognized for its potential in various socially beneficial use cases. These include financial inclusion, the tokenization of government securities, and improving the efficiency of targeted subsidies.
India’s rocky relationship with cryptocurrency is nothing new. In 2018, the RBI imposed a ban on banks handling cryptocurrency transactions, a decision that was overturned by the Supreme Court in 2020. Since then, the country has grappled with regulatory uncertainty, oscillating between imposing strict regulations and exploring more lenient approaches.
RBI Governor Shaktikanta Das remains a vocal critic of cryptocurrencies, repeatedly warning of their potential risks to economic stability. Das recently reiterated his concerns, highlighting the benefits of CBDCs while calling cryptocurrencies like Bitcoin a potential threat. Finance Minister Nirmala Sitharaman has also taken a firm stance, dismissing private cryptocurrencies as legal tender, though she remains open to regulating them.
In the meantime, India has implemented a 30% tax on crypto profits and introduced a 1% tax deducted at source (TDS) on crypto transactions. Regulatory bodies like SEBI have called for a multi-agency approach to crypto regulation and submitted recommendations to the finance ministry earlier this year.
Globally, the debate around cryptocurrencies continues. In a separate incident, venture capitalist Nic Carter criticized Minneapolis Federal Reserve President Neel Kashkari for his remarks on the limited use of crypto outside illicit activities. Carter, in a post on X (formerly Twitter), stated, “being this wrong should be illegal,” taking issue with Kashkari’s comments, which he viewed as out of touch with the actual data surrounding cryptocurrency usage.
As India prepares to issue its long-awaited discussion paper on crypto regulation, the future of private digital currencies in the country remains uncertain. The introduction of the digital rupee may reshape the financial landscape, but questions remain about how cryptocurrencies will coexist with the government’s ambitions for its own CBDC.
