What happened?
India has decided to maintain a partial oversight on the usage and trade of cryptocurrencies rather than introducing a comprehensive law, due to concerns of these digital assets heightening systemic risks in the country’s financial system. According to a government document, the Reserve Bank of India continues to express skepticism about the sector, arguing that proper regulation would be challenging, and legitimizing cryptos would make them systemic.
Who does this affect?
This move affects present and potential Indian cryptocurrency users and traders given the current high taxation and strict compliance requirements, which have notably reduced domestic trading volumes. It also has implications for global exchanges operating in India if registered with the Financial Intelligence Unit. Despite these restrictions, crypto adoption remains robust in India, with an estimated $4.5 billion in digital assets held by Indians.
Why does this matter?
This decision impacts India’s financial market, considering that India ranks at the top of the global crypto adoption index. How the government addresses concerns about cryptocurrencies can influence its position in the market. Although the existing framework discourages speculative trading and penalizes fraud, it also raised concerns about the role of stablecoins and their potential to fragment domestic payment systems and undermine India’s Unified Payments Interface. As such, it highlights the complexities in managing digital currencies and their effect on financial stability.