Despite India's leading position in global cryptocurrency adoption rankings, the government’s attitude towards private cryptocurrencies appears quite cautious. Reports suggest that the Indian government is considering banning private cryptocurrencies like Bitcoin and Ethereum, opting instead to support central bank digital currency (CBDC) as a safer and more inclusive financial system.
In recent years, India's cryptocurrency market has developed rapidly, with many people showing a keen interest in digital assets such as Bitcoin and Ethereum. However, this enthusiasm has not been recognized by the government. Indian authorities and regulators are concerned about the financial stability risks and potential illegal activities (such as money laundering and terrorist financing) posed by decentralized cryptocurrencies. In contrast, CBDC can achieve everything that private cryptocurrencies can do, but with lower risks. This new digital currency (the digital rupee) will be issued by the Reserve Bank of India and aims to provide a more stable form of currency.
The government has also pointed out that stablecoins are not as secure as people think. Stablecoins are not stable; although they are pegged to fiat currencies, gold, or other reserve assets, they still carry systemic risks. This was highlighted by the collapse of TerraUST in 2022 when it lost its peg to the dollar, causing catastrophic effects on the industry, further emphasizing its vigilance against private cryptocurrencies.
It is worth noting that these consultations took place before the government planned to release a discussion document on cryptocurrency regulation, which is expected to address growing concerns about private digital assets. This implies that upcoming decisions may lead India to implement stricter regulatory measures or even completely ban private cryptocurrencies.
Currently, India has many cryptocurrency exchanges and blockchain startups that not only offer cryptocurrency trading services but also promote the application of blockchain technology in finance, supply chain management, and other fields. However, if the Indian government implements a comprehensive ban on cryptocurrencies, these businesses and individuals will face immense legal and financial risks, potentially forcing them to relocate to other countries that are more friendly towards cryptocurrencies.
In response, the Indian crypto community is urging the government to adopt a more balanced policy to ensure that this emerging industry is not completely stifled. Cryptocurrency advocates argue that an outright ban would not only limit innovation but could also lead to capital outflows and weaken India's competitiveness in the global fintech sector.
At the same time, the Indian government's tough stance on cryptocurrency has not only sparked widespread domestic attention but has also elicited responses from the international community. Many international experts believe that India's policy direction, as the world's second-most populous country, will have a profound impact on the global cryptocurrency market.
Some international cryptocurrency exchanges and investors are concerned that if India were to fully ban cryptocurrency trading and holding, it could trigger market turmoil. Especially against the backdrop of increasingly stringent global regulatory environments regarding cryptocurrency, India's policies may provide a reference for other countries, prompting them to adopt similar restrictive measures.
Although the Indian government has not yet made a final decision on banning private cryptocurrencies, it is certain that CBDCs will be a focal point for the country's future digital currency development. The Reserve Bank of India (RBI) is actively promoting research and development of central bank digital currency. The RBI believes that CBDC is an innovative and modern development of the national sovereign currency that can enhance government oversight of monetary and payment systems.
India's CBDC—the digital rupee (e-Rupee)—was launched in the wholesale market in November 2022, followed by a retail pilot in December of the same year. Since the pilot began, the number of users of the digital rupee has exceeded 5 million, with 16 participating banks. The Indian government believes that the digital rupee can not only facilitate domestic financial transactions but is also expected to play an important role in international payments. With the review of performance data from the CBDC pilot project, the government plans to gradually expand the promotion of CBDC, aiming to secure a favorable position in the global financial system.
For cryptocurrency supporters, India's policy direction remains fraught with uncertainty. While the risk of a comprehensive ban exists, there are still voices within the industry calling for the government to adopt a more flexible and inclusive approach to cryptocurrency regulation. Only by balancing innovation and security can India secure a favorable position in the global competition for cryptocurrency and blockchain technology.
Overall, India's support for CBDC will undoubtedly bring about many economic and social changes. However, in this process, how to properly address the existence of cryptocurrencies like Bitcoin and Ethereum remains a serious consideration for the government and regulatory agencies.
