India’s government is leaning towards banning private cryptocurrencies like Bitcoin and Ether, according to reports. The move is based on extensive consultations with key regulatory bodies, highlighting concerns over the risks posed by private digital currencies. Instead, officials advocate for Central Bank Digital Currency (CBDC) as a safer and more beneficial alternative.
The government’s discussions with major institutions point to a strong consensus against private cryptos, citing the potential misuse in financial transfers and stability issues surrounding so-called stablecoins. These consultations are part of the government’s efforts to prepare a detailed discussion paper on the topic, with the final decision to be made after further debate.
An anonymous senior official explained, “CBDCs can do whatever cryptos do. CBDCs have more benefits than cryptos, minus the risks associated with private cryptocurrencies.” According to local reports , this view has gained traction as India has been experimenting with its digital currency, the e-rupee, which shows promise in promoting financial inclusion and ensuring safer transactions.
The official also questioned the reliability of stablecoins, which are pegged to assets like gold but remain prone to market fluctuations. They also stated that Stablecoins aren’t as stable as they seem, and CBDCs offer a much more reliable alternative for regulated financial systems they said.
Government’s Position Strengthened by International Consensus
India’s stance is bolstered by the synthesis paper adopted at the G20 summit in September 2023, which was prepared by the International Monetary Fund (IMF) and the Financial Stability Board (FSB). The paper endorses stricter regulation of cryptocurrencies and allows countries to implement even higher restrictions, including bans.
“Whilst the IMF-FSB synthesis paper proposes to have a minimum threshold for regulation, it doesn’t stop any country from adopting higher restrictions including a complete ban,” the second official noted. The message is clear—India is aiming for financial stability, and CBDCs seem to be the preferred route.
Blockchain, the underlying technology behind cryptocurrencies, has found favor with Indian regulators, but for different reasons. Instead of private cryptos, officials see potential in using blockchain for other purposes like tokenization of government securities and targeted subsidies.
RBI Governor Shaktikanta Das emphasized the programmability feature of the CBDC at a recent conference, saying it could help ensure that funds are directed towards the intended beneficiaries, further strengthening India’s financial inclusion efforts.
India’s CBDC pilot, which began in November 2022, has already garnered over five million users and involves 16 major banks. State Bank of India (SBI) recently tested lending through CBDCs for specific agricultural inputs, a sign of its practical utility. Officials believe that as more data is collected from ongoing pilot projects, the scope of the digital rupee will be expanded both within India and for cross-border transactions.
While the government’s inclination to ban private cryptos appears strong, the final decision will come after more consultations. The broader debate now hinges on whether CBDCs can truly replace private digital currencies without sacrificing innovation.
