India is taking a cautious approach to regulating cryptocurrency, unlike the US which is embracing it. Instead of creating a comprehensive legal framework, India is opting for a more hands-off approach due to concerns about potential systemic risks.
Systemic Risk Concerns
A government document reveals India’s concerns. It argues that fully regulating crypto could inadvertently legitimize it and make the crypto market too big and influential, posing a risk to the entire financial system. This isn’t a new issue; India previously drafted a crypto ban bill in 2021 but shelved it. Even during its G20 presidency, India’s plans for a global crypto framework were delayed. They’re waiting to see how the US handles crypto regulation before making any major moves.
The Global Crypto Landscape
While the US is pushing forward with crypto-friendly regulations, China maintains a ban, although it’s exploring a government-backed digital currency. Other countries like Japan and Australia are developing their own regulatory frameworks.
Current Situation in India
Currently, foreign crypto exchanges can operate in India if they register and comply with anti-money laundering rules. However, the Reserve Bank of India (RBI) has voiced strong concerns about crypto, leading to less interaction between the traditional financial system and the crypto market. Despite this, Indians have invested around $4.5 billion in crypto, but the government doesn’t see this as a major systemic threat yet.
Stablecoins: A Point of Concern
The document highlights concerns about the potential impact of US dollar-backed stablecoins, especially after the passage of the GENIUS Act (which promotes their use). India worries that widespread use of stablecoins could threaten India’s own digital payment systems, like the Unified Payments Interface (UPI), by creating competing payment networks.