India Considers Banning Cryptocurrencies in Favor of Its Own CBDC

India is considering banning cryptocurrencies such as Bitcoin BTC/USD and Ethereum ETH/USD in favor of its own central bank digital currency (CBDC)

India is considering banning cryptocurrencies like Bitcoin (CRYPTO: BTC) and Ethereum (CRYPTO: ETH) in favor of its own central bank digital currency (CBDC), according to a report.

The government is preparing a discussion paper on the future of crypto regulation in the country, and key regulatory institutions are advocating for the move, sources told Hindustan Times.

Consultations have strongly leaned toward prohibiting private cryptocurrencies, given the significant risks they pose, the officials said.

Government officials believe the risks of cryptocurrencies, including stablecoins, outweigh their benefits.

“CBDCs can do whatever cryptos do. In fact, CBDCs have more benefits than cryptos, minus the risks associated with private cryptocurrencies,” a government official, who spoke on condition of anonymity, told the publication.

Officials raised further concerns about the instability of stablecoins, or cryptocurrencies typically pegged to fiat currencies, questioning their reliability despite their backing by tangible assets.

A CBDC, called a "digital rupee" in India or commonly referred to as a "digital dollar" elsewhere, is a government-controlled blockchain token that works like a digital version of the state's fiat currency.

Detractors say that CBDCs will increase government surveillance of citizens, and they have faced substantial criticism from crypto advocates around the world.

India has aligned itself with international standards on crypto regulation as a G20 member, adopting the IMF-FSB synthesis paper in September 2023.

This global framework outlines a regulatory threshold, but allows individual nations to impose stricter measures if they choose, including a total ban.

Despite the stance against decentralized cryptocurrencies, Indian regulators have shown enthusiasm over the potential of blockchain, including for tokenization of government securities, delivering end-use credit to vulnerable populations, and implementing targeted subsidies.

Reserve Bank of India (RBI) Governor Shaktikanta Das recently highlighted the potential of CBDCs at a conference in Bengaluru, specifically emphasizing their role in financial inclusion.

“The programmability feature of CBDC could serve as a key enabler for financial inclusion by ensuring delivery of funds to the targeted user,” Das noted.

India’s CBDC, the digital rupee (e₹), has been in pilot testing since November 2022 in the wholesale market, with a retail pilot launching in December of the same year.

The retail pilot has now expanded to over 5 million users and includes 16 participating banks.

The RBI has been analyzing the outcomes of these pilots to determine how to scale up the digital rupee's use, including potential cross-border applications.

In August, the country's largest public sector bank State Bank of India (NYSE:SBI) launched a pilot program in the provinces of Odisha and Andhra Pradesh, using the CBDC to lend to tenant farmers for specific agricultural inputs.

Officials see these projects as indicative of the broad possibilities for CBDCs in both domestic and international transactions, reinforcing the government’s preference for this system over private cryptocurrencies.