Indian regulators and other government officials have been mulling a cryptocurrency ban for years. They are at best agnostic about decentralized digital currencies; crypto evangelists have failed to convert them to true believers so far, and it is not hard to see why. Crypto is an interesting emerging asset class, but its volatility and decentralized nature are problematic from a regulatory standpoint. A fast-growing, underbanked and massive emerging market like India will benefit greatly from digital finance platforms that boost financial inclusion – but they need not come with crypto’s baggage.
Case in point: In the five days to Feb. 7, Bitcoin’s value rose 15%. The world’s preeminent cryptocurrency is famous (or infamous, depending on how you look at it) for wild price swings. While that is perfectly acceptable for an asset class, with investors accepting the risk, it is not an ideal quality for a regular unit of payment.
From the standpoint of the Reserve Bank of India (RBI), it makes much more sense to create a digital fiat currency that gives the Indian government maximum control over the digital financial system rather than encouraging people to use decentralized options. It really comes down to control and minimizing systemic financial risk. A government-built blockchain will be better at tracing transactions. A government source told India’s Mint of an Indian CBDC: “It would be more like an electronic form of fiat currency, so in a sense it would be a government-mandated electronic wallet.”
The source continued: "In the case of a digital rupee instead of holding a note you will be holding a digital currency in your phone and it would be with the central bank and from there it would be transferred to any merchant. It is fully backed by the sovereign.”
As for crypto’s future in India, let’s just say it looks a bit hazy for now. Given all the twists and turns in India’s crypto saga so far, it is possible that tighter measures than the 30% tax could be implemented in the future. Or not. Perhaps the tax will discourage excessive speculation and help India’s crypto market mature.