India is unlikely to introduce a comprehensive cryptocurrency regulatory framework, opting instead for partial oversight to avoid potential systemic risks, according to a government document seen by Reuters.
The document reflects the Reserve Bank of India’s (RBI) stance that regulating cryptocurrencies effectively would be challenging in practice. It warns that granting regulatory legitimacy could push crypto into India’s mainstream financial system, thereby increasing systemic vulnerabilities.
India’s Cautious Stance on Cryptocurrency
While global acceptance of digital assets has expanded in recent years, India continues to tread cautiously. The U.S. has passed legislation allowing broader use of stablecoins, while Japan and Australia are developing regulatory frameworks with a cautious tone. Meanwhile, China maintains a ban on cryptocurrencies but is exploring a Yuan-backed stablecoin.
India, however, fears that full regulation could inadvertently fuel adoption, making cryptocurrencies a systemic sector. The government document notes:
- Regulation may cause legitimacy: Creating a full legal framework could encourage widespread use and institutional adoption.
- Bans have limits: While an outright ban could curb speculative trading, it would not prevent peer-to-peer transactions or decentralized exchange activity.
Past Attempts and Global Coordination
India previously drafted a bill in 2021 to ban private cryptocurrencies but never enacted it. During its G20 Presidency in 2023, the government pushed for a global regulatory framework for crypto.
In 2024, the finance ministry planned to publish a discussion paper on its crypto policy but deferred the release, waiting to observe developments in the U.S. cryptocurrency legislation.
What Lies Ahead
The government’s current position suggests India may continue with limited oversight rather than full-fledged regulation, balancing innovation with systemic risk management. Both the finance ministry and the RBI have yet to issue public comments on the latest developments.
