Why in News
- A recent government document (Sept 2025) shows India is leaning towards not creating legislation to regulate cryptocurrencies.
- Instead, it prefers partial oversight, citing concerns that mainstreaming crypto could create systemic financial risks.
Relevance:
- GS III – Economy: Financial regulation, cryptocurrencies, fintech innovation, systemic risk management, RBI’s Digital Rupee.
- GS III – Security: AML/CTF concerns, anonymous digital transactions, investor protection.
Basics
- Cryptocurrency: A digital currency using blockchain for decentralized transactions (e.g., Bitcoin, Ethereum).
- Stablecoins: Cryptos pegged to fiat currencies (e.g., USD, INR) → less volatile than Bitcoin.
- RBI stance: Sees crypto as speculative, risky, and difficult to regulate effectively.
- Global scenario:
- US: Legal framework for stablecoins, growing institutional acceptance.
- China: Complete ban on crypto, exploring Yuan-backed digital currency.
- Japan & Australia: Building regulatory frameworks, but cautious.
India’s Policy Dilemma
- Regulation risks: Would legitimize cryptos → possible systemic adoption → financial instability.
- Ban limitations: Cannot control peer-to-peer or decentralized exchange (DEX) trades.
- Middle path: Oversight without legislation; avoiding both blanket acceptance and enforceability problems of a total ban.
Concerns with Crypto in India
- Financial Stability: Volatility threatens household savings & banking system.
- AML/CTF risks: Anonymous transfers aid money laundering & terror financing.
- Investor Protection: Sudden crashes (FTX, Terra-Luna) highlight risks.
- Tax & Regulation Gaps: Difficult to monitor decentralized global transactions.
Opportunities if Managed
- Blockchain innovation: Can improve logistics, land records, governance.
- Fintech growth: Stablecoins & CBDCs may foster faster cross-border payments.
- Youth adoption: Rising interest among Indian investors despite risks.
Global Comparisons
- US model: Regulatory acceptance → promotes innovation, but risk exposure.
- China model: Ban + push for state-controlled Digital Yuan.
- India: Hybrid approach → encouraging CBDC (Digital Rupee) while restricting private crypto.
Way Forward
- Strengthen RBI’s CBDC as safe alternative.
- Create international coordination (via G20, FATF) for regulating cross-border flows.
- Develop investor awareness & protection mechanisms.
- Maintain oversight without legitimization until risks are globally addressed.
