India is considering adopting CBDC in place of a possible ban on cryptocurrencies like Bitcoin

India is currently considering a ban on cryptocurrencies such as Bitcoin and Ether, to push for its Central Bank Digital Currency (CBDC), according to reports from October 22, 2024.

According to Indian local media outlet Hindustan Times, who cited two officials familiar with the matter, the decision was made after the government consulted key institutions and regulators regarding the private cryptocurrencies, including stablecoin, and concluded that the risks of cryptocurrencies outweigh the benefits offered.

India dropping Crypto in favor of CBDC

One official reacted to the news, telling an Indian media outlet

"Central Bank Digital Currencies can do whatever crypto does... CBDCs even have more benefits than crypto, minus the risks associated with private cryptocurrencies."

Citizens are now waiting for a forthcoming discussion paper that the government has promised to publish on the topic. Earlier this year, India's Secretary of Economic Affairs, Ajay Seth, revealed that an inter-ministerial group, including the Reserve Bank of India, the nation's central bank, and the Securities and Exchange Board of India, its market regulator, was working on a discussion paper to clarify the country's official stance on cryptocurrencies.

The Indian government has originally promised to release the paper in September, but it has since been delayed.

IMF once published another paper, advising against the outright ban on digital currencies. In the paper, it proposed countries towards a more balanced regulatory approach.

Despite its recommendation, the IMF still granted countries the flexibility to adjust their crypto regulations according to the current situation of the individual countries, including a complete ban if need be.

But for the time being, Indian citizens would have to wait for the further consultations to be done before they can get a final verdict of what kind of policy the Indian government would be putting in place.

Despite the anti-crypto stance, the official remained optimistic about the underlying blockchain technology, noting various socially beneficial use cases such as enhancing financial inclusion, tokenizing government securities, and delivering targeted subsidies more efficiently.

Meanwhile, the Reserve Bank of India (RBI) has been actively promoting its retail CBDC. However, daily transaction volumes—currently around 18,000—remain well below the RBI’s goal of one million transactions per day by year-end. To increase adoption, the RBI is working on introducing new features such as offline transactions and integrating the digital rupee with India’s widely-used Unified Payments Interface (UPI).

India’s Regulatory History and the Ongoing Debate

India’s approach to cryptocurrency regulation has seen several reversals over the years. In 2018, the RBI imposed a ban on banks from facilitating crypto transactions, which was overturned by the Supreme Court in 2020, giving the crypto industry a second chance.

Since then, regulation has been a back-and-forth discussion, with talks of a potential ban still looming, as India explores its own CBDC.

In November 2023, RBI Governor Shaktikanta Das raised concerns about the potential destabilizing impact of cryptocurrencies on the Indian economy, reiterating support for the CBDC as a safer alternative. As India’s final policy decision looms, its effects are expected to be felt globally, given the country’s large base of cryptocurrency users.

Indian Finance Minister Nirmala Sitharaman also holds a firm stance against cryptocurrencies and has maintained that private cryptocurrencies cannot be considered legal tenders, though she supports regulating them.

Meanwhile, securities regulator SEBI has advocated for a multi-agency approach to crypto legislation and submitted suggestions in that regard to the finance ministry earlier this year.

India doesn't yet have. Aformal crypto regulatory framework, but it has slapped a 40% tax on crypto profits and a 1% TDS. Regulators have also increased oversight of the crypto trading market, with the financial intelligence Unite requiring crypto service providers to be licensed.