Key Points:
- Cautious stance: Limited crypto regulation to prevent risks.
- Stablecoins monitored: Protects UPI and payment systems.
- Risk control: Strict exchange rules and high taxes, no ban.
India is resisting the push for comprehensive cryptocurrency regulation, opting instead for limited oversight to prevent potential systemic risks, according to a government document. The approach, shaped by the Reserve Bank of India’s (RBI) concerns, reflects unease that full cryptocurrency regulation could legitimize digital assets and integrate them into the financial system in unsafe ways.
Concerns Over Stability and National Payment Systems
The document notes that regulating cryptocurrencies completely would be difficult in practice, as doing so could accelerate their adoption and create vulnerabilities. Stablecoins, particularly those pegged to the US dollar, were identified as an area requiring scrutiny. While stablecoins aim to reduce price volatility, they remain vulnerable to market shocks and liquidity shortages.
Officials expressed concern that widespread use of stablecoins could fragment India’s national payments architecture, especially the Unified Payment Interface (UPI), which has become central to the country’s digital payments ecosystem.
India does not currently favor an outright ban either, acknowledging that prohibiting cryptocurrencies would not eliminate peer-to-peer transfers or decentralized exchange activity, both of which are difficult to control. Instead, the government has prioritized measures such as requiring global crypto exchanges to register locally and adhere to stringent checks designed to curb money laundering and fraud.
Global Comparisons and Domestic Realities
The cautious stance comes as other countries adopt varying approaches to digital assets. Japan and Australia are building regulatory frameworks aimed at careful integration of cryptocurrencies into their economies. The United States recently enacted the GENIUS Act, which expands the use of stablecoins, while China maintains its ban on cryptocurrencies but continues developing a state-backed digital yuan.
Despite restrictive policies, cryptocurrency ownership in India is estimated at around $4.5 billion, according to the document. Regulators believe this level of exposure is not yet a systemic risk. However, India’s taxation policy, which imposes high levies on cryptocurrency gains, functions as a deterrent against speculative trading.
Waiting for Global Clarity
The report underscores the complexity of developing a uniform global policy for cryptocurrency regulation. Divergent strategies across nations make coordination difficult, but India has signaled it will reassess its position once the United States finalizes its regulatory framework.
India previously drafted a bill to ban private cryptocurrencies in 2021 but chose not to move forward. During its G20 presidency in 2023, the country advocated for a global framework to regulate virtual assets. A planned discussion paper in 2024 was postponed, with officials citing the need for greater international clarity before committing to a domestic policy.
For now, India’s restrained approach, punitive taxation, limited oversight, and close monitoring of international developments, reflects a balancing act between curbing risks and avoiding premature legitimization of cryptocurrencies through full cryptocurrency regulation.
