India Resists Full Crypto Framework

GS 3 – Economy

Context

India is reluctant to introduce comprehensive legislation to regulate cryptocurrencies. The government, aligning with the Reserve Bank of India (RBI), has expressed concerns that bringing cryptocurrencies into the mainstream financial system could increase systemic risks, making regulation difficult and potentially destabilizing the economy.

Key Highlights

Government’s Position

  • India will not create full legislation for cryptocurrencies at present.
  • Instead, it plans to maintain partial oversight to monitor the sector without fully integrating it into the financial system.
  • The government shares the RBI’s view that cryptocurrencies pose challenges due to:
    • Speculative trading
    • High volatility
    • Potential for illicit activities (like money laundering and terror financing)
    • Risks to financial stability

RBI Concerns

  • RBI fears that regulating crypto would:
    • Grant legitimacy to virtual currencies.
    • Increase public trust, causing higher adoption.
    • Make the system prone to wild swings similar to foreign exchange crises.
  • RBI recommends caution over outright legalization.

Global Approach

  • United States: Prefers regulation without full legalization.
  • China: Cracking down on cryptocurrencies while experimenting with central bank digital currency (CBDC) like the digital Yuan.
  • Japan and Australia: Regulate crypto through strict frameworks while not granting them full legal status.
India’s Strategy
  • India aims to monitor and partially regulate cryptocurrencies rather than bring them fully under a legal framework.
  • The government’s concern is that over-regulation might make crypto appear safe and attractive to investors, increasing systemic risk.
  • This strategy aligns with a cautious, step-by-step approach to digital finance.
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