Indian regulators are currently contemplating the possibility of banning private cryptocurrencies such as Bitcoin in favor of central bank digital currencies (CBDCs) to create a safer and more inclusive financial system, as reported by local media outlets.
According to reports, the government has engaged in discussions with key institutions regarding this matter, with many expressing their support for the prohibition of private cryptocurrencies. They argue that any potential benefits offered by private cryptos, such as facilitating benefits transfer, can be achieved through the use of the country’s digital rupee.
An unnamed official stated, “CBDCs can provide the same functionalities as private cryptocurrencies but with significantly lower risks.” Additionally, they highlighted concerns about the security of stablecoins, cryptocurrencies that are pegged to assets like gold. These discussions come at a time when India is recognized as a global leader in crypto adoption.
The preference for CBDCs is evident in the ongoing conversations, preceding a forthcoming government discussion paper on the topic. Regulators are emphasizing that the risks associated with cryptocurrencies, including stablecoins, outweigh any potential advantages they may offer.
India has previously endorsed the IMF and FSB’s 2023 synthesis paper on crypto regulation as part of the G20, which allows nations to implement stricter measures, including a complete ban on private digital currencies. Officials advocating for a ban believe that blockchain technology, the foundation of cryptocurrencies, can still be utilized for other beneficial purposes, such as tokenizing government securities and improving the delivery of subsidies to underserved communities.
RBI Governor Shaktikanta Das has praised the programmability of CBDCs, highlighting their potential to enhance financial inclusion by ensuring that funds reach their intended recipients without leakage. The digital rupee, India’s CBDC, was introduced in the wholesale segment in November 2022, followed by a retail pilot in December of the same year.
The retail pilot has since expanded to include over 5 million users and 16 participating banks, with the State Bank of India (SBI) exploring CBDC usage for targeted agricultural loans in Odisha and Andhra Pradesh. The government sees the digital rupee as a promising solution for both domestic and international transactions, with plans to gradually expand CBDC pilot programs based on performance data.
While the final decision on banning private cryptocurrencies remains pending, India’s increasing support for the digital rupee signals a strong preference for central bank-controlled digital currencies over decentralized alternatives.