Indian regulators are reportedly considering a ban on cryptocurrency again as it views cryptocurrencies as high-risk investments and leans towards a more regulated alternative i.e Central Bank Digital Currency, commonly known as CBDC. But what makes the ‘world’s largest democracy’ consider a crypto ban? Here’s our take:
In India, the CBDC is a digital rupee (e₹). Insiders suggest that the authorities believe CBDC could serve a similar purpose to cryptocurrencies but with greater oversight and reduced risks. The Reserve Bank of India has already initiated the digital rupee which has gained quite a popularity since its launch in 2022.
As of 2024, around 5 million users have adopted CBDC for retail transactions although a significant drop has been seen in the wholesale sector. In 2018, the Reserve Bank banned financial institutions from providing services to Crypto companies. This ruling was later overturned by the Supreme Court. By 2021 discussions about instituting another ban resurfaced but the government decided instead to enforce one of the strictest crypto tax structures in the world in 2022. As of 2024, any profits from cryptocurrencies are to be taxed at 30%, with an additional tax of 1% on every transaction, pushing people to be discouraged from using cryptocurrencies as a currency.
The government has consistently affirmed that Bitcoin will not be recognized as legal tender in India, but Indian traders continue to show a strong preference for popular assets like Bitcoin and Ethereum over CBDCs. This approach towards cryptocurrency has raised eyebrows, as some speculate the high tax rate on cryptocurrencies was a strategic move to deter trading in cryptos and push people to pick up CBDCs as an alternative.
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But the speculations have triggered the crypto community in India, who is adamant on adopting cryptos, despite the regulatory norms.
Also Read: India Emerges as Global Crypto Powerhouse Despite Regulatory Hurdles
Sumit Gupta, CEO of CoinDCX recently said, “I just read an article on @htTweets where an anonymous expert compares CBDCs to crypto and claims, ‘CBDCs can do whatever cryptos do..CBDCs have an edge over Bitcoin. ‘I humbly disagree with the above statement. CBT Season Crypto assets solve different purposes and shouldn’t be viewed as competitors; instead, they complement each other. By leveraging advancements in the Crypto space, we can enhance the efficiency, security, and inclusivity of CBTCS, making them more adaptable for real-world applications.”
I just read an article on @htTweets where an anonymous expert compares CBDCs to crypto and claims, ‘CBDCs can do whatever cryptos do.. CBDCs have an edge over bitcoin’’
I humbly disagree with the above statement. CBDCs and crypto assets serve different purposes and shouldn’t be… pic.twitter.com/QJS5DowmQx
— Sumit Gupta (CoinDCX) (@smtgpt) October 23, 2024
In India, the legal status of cryptocurrency is quite ambiguous. The government seems to be favoring strict regulations and not recognizing it as a legal tender. There are significant concerns that the anonymity of cryptocurrency could enable illegal activities.
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Further, the decentralized nature of cryptocurrency creates challenges for oversight because of this they do not fit the legal definition under the Foreign Exchange Management Act (FEMA). It is this lack of clarity that has contributed to the ongoing regulatory discussions with officials contemplating favoring CBDCs to help establish a more regulated currency system. But amidst, big countries that are apprehensive about crypto, lower populated countries like Bhutan are taking the opportunity to stack up Bitcoin holdings and use its hydro-power to mint digital gold, thus, setting an example for India and others.
