India’s relationship with digital currencies has been quite complex over the years. This complexity was accentuated by recent reports suggesting that key regulatory bodies and institutions in the country are considering prohibiting “private cryptocurrencies” such as Bitcoin and Ethereum. According to a report by Hindustan Times, these regulators argue that the benefits offered by these “private cryptocurrencies” could be replicated through the use of Central Bank Digital Currencies (CBDCs).
The specific officials or organizations supporting this viewpoint were not mentioned in the report, making it challenging to gauge the government’s stance on this matter definitively.
Presently, the Indian government is drafting a discussion paper on cryptocurrencies, a precursor to potential legislation. Despite conducting numerous consultations in recent months, the prevailing sentiment is that the risks associated with crypto-assets outweigh the benefits they offer.
An official remarked, “CBDCs can fulfill the same functions as cryptocurrencies, but with additional benefits and fewer risks compared to private cryptocurrencies.”
However, given the rising popularity of cryptocurrencies in India, the government may eventually lean towards supporting assets like Bitcoin and Ethereum. Despite its reservations about cryptocurrencies, India has consistently shown interest in the broader applications of blockchain technology.
Challenges with “institutional confidence”
The shift in the prevailing consensus will hinge on the level of institutional confidence in cryptocurrencies. For instance, the Governor of the Reserve Bank of India has frequently expressed apprehensions about cryptocurrencies and their price volatility. Like many government officials, Shaktikanta Das has advocated for CBDCs while underscoring the risks linked to cryptocurrencies.
India’s Finance Minister, Nirmala Sitharaman, shares similar views on this matter.
In 2023, India endorsed an IMF-FSB joint paper cautioning against an outright ban on cryptocurrencies. Nonetheless, the document allows for the possibility of imposing stricter regulations on the crypto space, a path that India seems inclined towards presently.
Scrutiny on Crypto-entities
Besides focusing on cryptocurrencies, the Indian government has also turned its attention to crypto-related entities.
For instance, consider the situation involving Binance. In January 2024, India restricted access to the crypto exchange’s app and platform due to alleged breaches of anti-money laundering laws. While this decision was reversed in August, Binance had to register as a reporting entity with India’s Financial Intelligence Unit (FIU) before regaining access to the Indian market.