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India Shies Away from Full Crypto Regulation, Citing Systemic Risk Concerns

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India is unlikely to adopt a comprehensive legal framework for cryptocurrencies, opting instead for partial oversight to avoid exposing its financial system to systemic risks, according to a government document seen by Reuters.

Key Points from the Document

  • RBI’s stance: The Reserve Bank of India believes regulating cryptocurrencies would effectively grant them legitimacy and could allow the sector to grow into a systemic risk.

  • Legislation status: A 2021 draft bill to ban private cryptocurrencies was never passed. A planned 2024 discussion paper was deferred pending U.S. regulatory clarity.

  • Ban vs. regulation: While a ban could curb speculative risks, it would not eliminate peer-to-peer transfers or trading on decentralized exchanges.

  • Current approach:

    • Global exchanges may operate in India if they register locally and comply with anti–money laundering checks.

    • Punitive taxes discourage speculative activity.

    • Current laws act as a deterrent against fraud and illegal use.

  • Scale of adoption: Indians hold about $4.5 billion in crypto assets, which remains non-systemic for financial stability at present.

Global Context

  • United States: Under President Trump, the U.S. legalized wider use of stablecoins via the GENIUS Act (July 2025).

  • China: Continues to ban cryptocurrencies but is considering a Yuan-backed stablecoin.

  • Japan & Australia: Developing cautious regulatory frameworks without aggressive promotion.

Stablecoin Concerns

  • The document highlights that widespread adoption of dollar-backed stablecoins could:

    • Fragment India’s Unified Payment Interface (UPI) system.

    • Weaken domestic payment infrastructure.

    • Create new risks from liquidity shocks and global market volatility.

Outlook

India’s “wait-and-watch” approach underscores a balancing act: deterring speculative trading without granting legitimacy that could make crypto mainstream. While global peers move toward clearer frameworks, India seems intent on limiting crypto’s footprint in its financial system until international standards stabilize.