Cryptocurrency Regulation: An Indian Perspective

Several central banks are closely monitoring cryptocurrencies to both determine regulations to protect investors as well as explore their benefits in the context of central bank digital currencies.

Central bank digital currenciesThe potential of cryptocurrencies to make transactions and payments faster, cheaper and more secure has attracted several central banks to actively experiment with them.

Reserve Bank of India and cryptoThe RBI has had a two-pronged view on cryptocurrencies and has been very consistent in its messaging for several years now.

The current need is a clear articulation of what constitutes a cryptocurrency or what classes of cryptocurrencies it considers to be problematic.

This is a key problem that the cryptocurrency community needs to address by initiating a dialogue with regulators.

In 2017, there were several reports that the RBI may be experimenting with its own digital currency, and this was later confirmed by the RBI itself in April 2018 when it announced that an interdepartmental group was analyzing the feasibility of a rupee-backed CBDC. In a major setback to cryptocurrency enthusiasts, the RBI banned paying for cryptocurrencies using systems and portals of Indian banks in April 2018.

This was arguably an easy way for the RBI to clamp down on cryptocurrency investment through already regulated systems while ring-fencing regulated entities and consumers from the risks of cryptocurrency investment.

This has laid a further dampener for Indian startups vying for the cryptocurrency market.

We first need standardized nomenclature to reason about the functions, use cases, benefits and risks of different cryptocurrency types.

With the right controls and oversight, benign uses of cryptocurrency can help stimulate economic growth, foster financial inclusion, enable innovation to thrive, and simultaneously protect investors from misuse of this technology.