India weighs crypto ban as it pushes for digital rupee adoption

Regulators in India are considering banning cryptocurrencies like Bitcoin and Ether and are encouraging the use of digital rupees instead.

Local media outlet Hindustan Times quoted two officials familiar with the matter on October 22 as claiming that the government had consulted with key institutions and regulators regarding private cryptocurrencies, including stablecoins, and concluded that the risks outweighed the benefits offered.

Central Bank Digital Currencies “can do everything cryptos do,” an official said, adding, “CBDCs have more benefits than cryptos, excluding the risks associated with private cryptocurrencies.” he said.

Although specific parties involved in the consultations were not disclosed, the talks were reportedly held ahead of an upcoming discussion paper the government is expected to publish on the issue.

Earlier this year, Indian Economic Affairs Minister Ajay Seth announced 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 working on a new project. Discussion article to clarify the country’s official stance on cryptocurrencies.

Originally planned to be published in September, the document has been delayed and it is unclear whether it is the same policy document.

At the time, Seth referenced the IMF-FSB synthesis document dated July 2023, which recommended against an outright ban on digital currencies. Instead, the document proposed a balanced regulatory approach, which India’s finance ministers and central bank governors adopted along with other G20 countries later that year.

But the article also emphasized that countries have the flexibility to impose stricter regulations.

“Although the IMF-FSB synthesis document proposes to set a minimum threshold for regulation, this does not prevent any country from adopting higher restrictions, including a complete ban,” the second official added.

The report stated that the final decision on the issue will be made after further consultation.

Despite the anti-crypto stance, the official remained optimistic about underlying blockchain technology, noting various socially beneficial use cases such as increasing financial inclusion, tokenizing government bonds, and providing targeted subsidies more efficiently.

India’s history with crypto

India’s relationship with crypto has been a wild ride. In 2018, the RBI banned banks from handling crypto transactions, but in 2020, the Supreme Court lifted the ban, giving the crypto industry a second chance.

Since then, regulation has been a back-and-forth debate, with talks ongoing about a potential ban as India explores its own CBDC.

Last week, RBI Governor Shaktikanta Das once again expressed concerns about cryptocurrencies while highlighting the benefits of CBDCs. The RBI maintains its stance that digital assets such as Bitcoin may pose risks to the economic stability of the country.

Indian Finance Minister Nirmala Sitharaman also takes a firm stance against cryptocurrencies, arguing that private cryptocurrencies cannot be considered legal tender but supports their regulation.

Meanwhile, securities regulator SEBI has advocated a multi-agency approach to crypto regulation and submitted proposals in this regard to the finance ministry earlier this year.

India does not yet have a formal crypto regulatory framework, but has imposed a 30% tax and 1% TDS on crypto profits. Regulators have also increased oversight of the crypto trading market, with the Financial Intelligence Unit requiring crypto service providers to obtain a licence.