The relationship between India and digital currencies has been complex over time. Recently, there has been a renewed focus on this relationship following a report in the local media suggesting that key regulators and institutions in the country are in favor of outlawing “private cryptocurrencies” such as Bitcoin and Ethereum. According to Hindustan Times, these authorities believe that the benefits offered by these “private cryptocurrencies” can be achieved through the use of Central Bank Digital Currencies (CBDCs).
It is important to note that the report did not specify the officials or institutions supporting this stance, making it challenging to gauge the government’s exact position on the matter.
Presently, the Indian government is drafting a discussion paper on digital currencies, a step that could potentially precede the introduction of new regulations. Despite engaging in extensive consultations in recent months, the prevailing view is that the risks associated with cryptocurrencies outweigh the benefits.
One official even stated,
“CBDCs can replicate the functions of cryptocurrencies. Furthermore, CBDCs offer more advantages than cryptocurrencies, minus the risks associated with private digital assets.”
Nevertheless, given the increasing popularity of cryptocurrencies in the country, the Indian government might eventually align with cryptocurrencies like Bitcoin and Ethereum. Regardless of its stance on digital currencies, India has consistently shown a positive outlook on blockchain technology and its diverse applications.
Concerns Regarding “Institutional Confidence”
The potential reversal of the prevailing consensus will depend on the level of institutional confidence in digital currencies. For instance, the Governor of the Reserve Bank of India has long expressed apprehensions about cryptocurrencies and their volatility. Shaktikanta Das, like many government officials, has frequently praised CBDCs while emphasizing the associated risks of cryptocurrencies.
India’s Finance Minister Nirmala Sitharaman shares similar views.
In 2023, India adopted an IMF-FSB synthesis paper cautioning against an outright ban on cryptocurrencies. However, the paper also allows for the implementation of stricter regulations on this asset class, a direction that India currently seems inclined towards.
Scrutiny Extends to Crypto-Enterprises as Well!
In addition to cryptocurrencies, crypto-enterprises have faced challenges with the Indian government.
Take the example of Binance, for instance. In January 2024, India barred access to the crypto-exchange’s app and platform, citing non-compliance with anti-money laundering regulations. However, this decision was reversed in August, following Binance’s registration as a reporting entity with India’s Financial Intelligence Unit (FIU).