The Indian government finds it difficult to regulate cryptocurrencies and prefers partial oversight, creating uncertainty for investors.
Reasons for Choosing Partial Control
According to a government document, India is avoiding comprehensive cryptocurrency legislation and will continue with partial oversight. The Reserve Bank of India's (RBI) views highlight that regulating crypto assets could grant them legitimacy and increase systemic risks.
Impact of Stablecoins on Policy
The document also emphasizes the risk posed by stablecoins used globally. With the passage of the GENIUS Act in the U.S., rules for dollar-backed stablecoins have been established. Indian officials warn that widespread use of stablecoins could fragment national payment systems, including the Unified Payment Interface (UPI), redirecting flows from domestic systems.
Future of Cryptocurrency Regulation in India
India's position on cryptocurrencies has evolved. A draft bill in 2021, aiming for a blanket ban on private cryptocurrencies, was shelved. During its G20 presidency in 2023, India advocated for a global regulatory framework. This led to expectations for a discussion paper in 2024, but plans were deferred. The government appears poised to continue a containment strategy, creating a fractured market with limited institutional engagement due to policy uncertainties.
Currently, India continues to tolerate cryptocurrencies but with strict limitations. Growing global coordination on stablecoins may eventually necessitate a reassessment of the approaches, but uncertainty remains for now.
