The Indian government is considering the adoption of a central bank digital currency (CBDC) as an alternative to private cryptocurrencies, due to concerns over the risks associated with decentralized digital assets.

India's Concerns About Private Cryptocurrencies

Private cryptocurrencies have gained significant popularity worldwide, including in India, due to their potential for high returns and opportunities to bypass traditional banks. However, their decentralized nature and anonymity raise concerns for authorities. The government is worried about their potential use in money laundering, tax evasion, and funding illegal activities.

Crypto Regulation in India

Indian authorities are focusing on central bank digital currencies like the proposed digital rupee to maintain control over monetary policy and financial oversight. This focus could reduce risks associated with private digital currencies. Previously, the government attempted to pass a bill to ban cryptocurrencies, but it was postponed and eventually scrapped. Additionally, the RBI Act of 1934 was amended to provide a legal basis for the creation of digital rupee.

Growing Interest in CBDC From Central Banks

A recent Bank for International Settlements survey shows increasing interest in CBDCs. 94% of the 86 banks surveyed are actively exploring the creation of digital versions of their national currencies, with some countries like China, Nigeria, and the Bahamas already implementing their CBDCs. In the UAE, authorities have partnered with tech giants for CBDC applications.

India's consideration of CBDC adoption is part of a global trend towards digital currency modernization. This move aims to strengthen control over financial flows and reduce risks associated with private crypto assets.