(Kitco News) – Following the recent research papers from the U.S. Federal Reserve and European Central Bank (ECB) calling for a ban on Bitcoin (BTC), the government of India has jumped on the bandwagon and is reportedly considering a ban on all private cryptocurrencies.
According to a report from Hindustan Times, “Key institutions and regulators that the government consulted on the issue of cryptocurrencies are in favour of prohibiting private cryptos such as Bitcoin and Ether since any advantage they might offer in areas of benefits transfer can be leveraged by the use of the Central Bank Digital Currency (CBDC).”
The report cited two people familiar with the matter who wished to remain anonymous, who told the outlet that the consultations were held ahead of the government’s plans to draft a discussion paper on the topic of digital assets. The overall consensus is that the risks posed by cryptos, including stablecoins, far outweigh the benefits, while CBDCs can aid in efforts to manage the economy better.
“CBDCs can do whatever cryptos do,” one source said. “In fact, CBDCs have more benefits than cryptos, minus the risks associated with private cryptocurrencies.” They also questioned the stability of stablecoins and highlighted the difficulties in verifying what backs them.
While no decision has been made, the sources said the government is leaning towards a ban, pending further consultations.
A second source noted that in September 2023, India, as part of the G20, adopted the synthesis paper regarding digital assets that was released by the International Monetary Fund (IMF) and the Financial Stability Board (FSB).
“Whilst the IMF-FSB synthesis paper proposes to have a minimum threshold for regulation, it doesn’t stop any country from adopting higher restrictions, including a complete ban,” they noted.
Both sources underscored that the underlying blockchain technology that powers crypto has many benefits to offer society, including the tokenization of government securities, end-use credit to weaker sections of the economy, and targeted subsidies.
India also has one of the most advanced CBDC pilots in the world after launching their first wholesale digital rupee pilot in November 2022, which was followed by the launch of the retail pilot in December 2022. More than 5 million users and 16 banks are currently participating in the retail pilot.
“The programmability feature of CBDC could serve as a key enabler for financial inclusion by ensuring delivery of funds to the targeted user,” said Shaktikanta Das, Governor of the Reserve Bank of India (RBI).
The country has also explored blockchain technology applications that support various critical industries. In August, the State Bank of India (SBI) launched a pilot project in Odisha and Andhra Pradesh that involved lending to tenant farmers for specific agricultural inputs.
Indian officials see immense potential for both blockchain technology and CBDCs in facilitating cross-border transactions but worry about the effects that uncontrolled private cryptos can have on the economy. The sources said that after they finish analyzing the data from the ongoing pilots, the government plans to expand the scope of their CBDC trials.
In response to the report from Hindustan Times, Sumit Gupta, the CEO of Indian crypto exchange CoinDCX, said he “humbly disagrees” with the statement that “CBDCs can do whatever cryptos do” and that “CBDCs have an edge over Bitcoin.”'
“CBDCs and crypto assets serve different purposes and shouldn't be viewed as competitors. Instead, they complement each other,” Gupta tweeted. “By leveraging advancements in the crypto space, we can enhance the efficiency, security, and inclusivity of CBDCs, making them more adaptable for real-world applications.”
“I welcome the opportunity to engage in fact-based discussions with experts on how we can collectively build a more robust financial ecosystem,” he added.
