By A K Shrivastav
Despite favourable developments in the US, India is not going to change its stance on cryptocurrency and stablecoin regulations. According to a report by Reuters based on a new policy document, India will keep a watch on how digital assets play out in the Indian market but won’t regulate it by enacting a set of laws. According to the documents seen by the news agency, the Reserve Bank of India (RBI) thinks introducing regulations will provide legitimacy to this sector, which can pose systematic risks to the country’s financial system and containing it would be difficult.
The US has recently passed a law for stablecoins, the Guiding and Establishing National Innovation for US Stablecoins Act (GENIUS Act), which provides a clear roadmap and regulatory environment for stablecoins to exist and operate. Since Donald Trump has taken charge of the US presidency, the cryptocurrency market, especially Bitcoin, has seen an unprecedented rise in its value. This is being attributed to Trump’s positive outlook for the digital assets sector. Several of Trump’s businesses are now directly involved in it.
A new development in the digital asset space has been the recognition that the GENIUS Act offers to stablecoins, which has since become a $250 billion market. By not adopting stablecoins, estimates suggest that India is losing roughly $60 as fees paid for international payments. However, India is wary about stablecoins as they are pegged to US dollars. An important blockchain player from India but registered overseas, Polygon has announced that it would launch a stablecoin pegged to Indian rupee. That would be an interesting development and how it influences Indian policy makers needs to be watched out.
China is also reported to be working out a framework for a Yuan-backed stablecoin. UK, South Korea, Japan, Australia, Brazil, and Indonesia are also considering launching stablecoins. Among retail companies, Walmart and Amazon are planning to issue their stablecoins. Retailers like Walmart and Amazon, who process a large number of credit card payments are trying to save the 3% fees that payment processing companies like Mastercard and Visa charge. Similarly banks such as Bank of America and Citi Group, among many others, are in the race to have their own stablecoins.
Experts warn that overlooking the growing popularity of stablecoin can make Indian banks uncompetitive and make their customers shift to financial institutions who embed new payment solutions like stablecoin. However, the Indian policy document does not wish to ban cryptocurrencies and stablecoins as that would not impact peer-to-peer transactions and trades on decentralised exchanges.
India’s current policy stance is out of step with its earlier outlook, when in 2021, the country was considering enacting regulations for the digital assets. During its G20 presidency in 2023, India proposed a global framework to regulate the cryptocurrency sector. However, nothing much happened on that front as many countries like the US and members of the European Union (through MiCA) have made their own independent laws.
As of now, offshore crypto exchanges need to register themselves with India’s Financial Intelligence Unit (FIU) and follow rules to prevent money laundering. Besides, the sector also faces one of the highest taxes. The RBI thinks that keeping regulations limited only to discourage cryptocurrencies has deterred speculative trading and risks to the financial system. While RBI has been vigorously opposing regulations for the cryptocurrency sector, India has consistently been at the top in crypto adoption. As per reports, Indians have invested $4.5 billion in various cryptocurrencies.
A recent report by The Economic Times reveals 93% of Indian investors would like to see a legal and regulatory framework for cryptocurrencies and 56% of them believe that it would protect investors while also making the sector more stable.
Interestingly, Jayant Chaudhary, the Minister of State, Skill Development & Entrepreneurship, and his wife have declared cryptocurrency investments in their official assets disclosure for the second consecutive year. Both husband and wife hold cryptocurrencies worth about Rs 22 lakh each.
Although the RBI’s latest policy document aligns with its earlier stance, a lot has changed over the past year. The popularity of stablecoins in major economies and rapid adoption of crypto by Indian investors are some realities that can’t be ignored. Trump’s pro-crypto initiatives have once again made the US the hub of digital assets. The previous Joe Biden administration had a hawkish approach, resulting in many crypto exchanges shutting their businesses in the US and taking them to more favourable jurisdictions. India needs to engage pro-actively with stakeholders and work out a complete set of laws for the cryptocurrency sector. (IPA Service)
