David Edwards
Indian regulators are signaling a shift towards banning private cryptocurrencies like Bitcoin and Ethereum, while promoting Central Bank Digital Currencies (CBDCs) as a safer alternative. According to The Hindustan Times, key government institutions, following recent consultations on cryptocurrency regulation, are in favor of such a ban. The institutions argue that CBDCs can offer similar benefits with fewer risks.
Government’s Position on Cryptocurrencies and CBDCs
Officials involved in the consultations, speaking anonymously, revealed that the consensus leans toward viewing private cryptocurrencies as riskier compared to CBDCs.
“CBDCs can do everything that cryptocurrencies do, but with more benefits and fewer risks,” one official noted.
India’s regulatory direction aligns with the International Monetary Fund (IMF) and Financial Stability Board (FSB) synthesis paper adopted in September 2023, which sets minimum regulatory standards for crypto. The paper, however, allows countries to implement stricter measures, including outright bans.
Reserve Bank of India (RBI) Governor Shaktikanta Das, at a recent conference in Bengaluru, emphasized the potential of CBDCs for financial inclusion. India’s digital rupee (e₹), launched in late 2022, has already gained over 5 million users, with 16 banks participating in the pilot. The State Bank of India (SBI) is also exploring CBDC applications, including pilot projects for lending to tenant farmers through programmed end-use credits in Odisha and Andhra Pradesh.
India’s Evolving Stance on Cryptocurrencies
India’s approach to cryptocurrency regulation has evolved significantly since 2013, when the RBI issued its first warning about virtual currencies. Following the 2016 demonetization, cryptocurrency investments surged as digital payments gained traction. However, in 2018, the RBI imposed a ban on banks facilitating cryptocurrency transactions, severely impacting trading volumes.
A major shift occurred in March 2020, when India’s Supreme Court lifted the RBI’s ban, declaring it unconstitutional. This decision led to renewed trading activity and the re-opening of cryptocurrency exchanges.
Since then, the Indian government has proposed legislation to regulate cryptocurrencies, clearly distinguishing between private digital currencies and state-issued ones like CBDCs.
Cryptocurrency Taxation and Legal Status in India
Despite growing interest, cryptocurrencies are not recognized as legal tender in India. However, they are classified as Virtual Digital Assets (VDAs) under the 2022 budget. This classification subjects crypto profits to a 30% tax, irrespective of whether the income is considered capital gains or business income. Additionally, a 1% Tax Deducted at Source (TDS) applies to all crypto transactions exceeding INR 10,000 annually.
While the government acknowledges the potential of blockchain technology, it remains cautious regarding private cryptocurrencies. The final regulatory framework is expected after extensive consultations, but current indicators suggest a preference for CBDCs over private digital assets.
