Regulators in India are considering banning cryptocurrencies like Bitcoin and Ether and are instead, promoting the use of the digital rupee.

On Oct. 22, local media outlet the Hindustan Times cited two officials familiar with the matter who claimed that the government consulted with key institutions and regulators regarding private cryptocurrencies, including stablecoins, and concluded that the risks outweigh the benefits offered.

Central Bank Digital Currencies can “do whatever cryptos do,” said one official, adding that “CBDCs have more benefits than cryptos, minus the risks associated with private cryptocurrencies.”

Although the specific parties involved in the consultation were not disclosed, the discussions were reportedly held ahead of a forthcoming discussion paper that the government is expected to issue 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 paper, originally slated for release in September, has been delayed, and it is unclear whether this is the same policy paper.

At the time, Seth referred to the IMF-FSB synthesis paper from July 2023, which advised against an outright ban on digital currencies. Instead, the paper proposed a balanced regulatory approach, one that India’s finance ministers and central bank governors, along with other G20 nations, adopted later that year.

However, the paper also highlighted that countries have the flexibility to impose stricter regulations.

“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 added.

A final decision on the matter will be made following further consultations, the report noted.

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.

India’s history with crypto

India’s relationship with crypto has been a wild ride. In 2018, the RBI banned banks from handling crypto transactions, but in 2020, the Supreme Court overturned the ban, 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. 

Last week, RBI Governor Shaktikanta Das emphasized the benefits of CBDCs while once again voicing his concerns about cryptocurrencies. The RBI remains firm in its stance that digital assets like Bitcoin could pose risks to the country’s economic stability.

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 a formal crypto regulatory framework, but it has slapped a 30% tax on crypto profits and a 1% TDS. Regulators have also increased oversight of the crypto trading market, with the Financial Intelligence Unit requiring crypto service providers to be licensed.