- The Reserve Bank of India (RBI) is concerned about crypto’s potential to destabilize the financial system and undermine monetary policy.
- India and Russia are in the final stages of their central bank digital currency (CBDC) programs, getting ready for mass rollouts.
- Meanwhile, Hong Kong regulators aim to fast-track crypto exchange licensing applications to support the market’s growth.
Despite leading global crypto adoption, India has a stringent stance on digital asset regulations.
Commenting on the second proposal to ban unregulated virtual currencies, the country’s central bank governor, Shaktikanta Das, said crypto could destabilize the traditional financial system.
Instead of cryptocurrencies, the Indian government leans toward their centralized alternative, the digital rupee.
How far is India from a full-scale CBDC launch, and what will it mean for crypto? Let’s zoom in.
Crypto Is a Speculative Bubble, Says Indian Regulator
Speaking at Macro Week 2024, Shaktikanta Das expressed concerns regarding the very nature of crypto.
He argued that currency issuance has historically been a government’s function. Crypto, which bypasses central authorities, could wreak havoc on the financial system.
Shaktikanta Das elaborated that crypto undermines the central bank’s control over monetary policy, which means it can’t control inflation and manage economic cycles.
Besides, he views the crypto market as a speculative bubble where tokens hold no intrinsic value. The introduction of crypto exchange-traded funds (ETFs) worldwide hasn’t changed Das’ stance.
However, Shaktikanta Das doesn’t support an outright crypto ban. India has taken a measured approach, imposing a hefty 30% tax on crypto earnings but not prohibiting banks from dealing with digital assets.
Can the Digital Rupee Gain Mass Adoption?
The RBI first proposed a digital rupee in 2017, when crypto started to gain mass retail adoption.
In 2021, Indian regulators proposed The Cryptocurrency and Regulation of Official Digital Currency Bill 2021, which would ban crypto and authorize the RBI to develop a CBDC.
In November 2022, the RBI commenced its wholesale digital rupee pilot program, which is still ongoing. Although the 2021 ban on crypto was eventually lifted, recent regulatory shifts suggest India is preparing for a full-fledged digital rupee rollout.
A digital rupee would be pegged to the Indian rupee, allowing for faster, cheaper transactions that the central bank could track in real time.
Is it good news? The ‘faster and cheaper’ part, sure. The real-time tracking part is questionable.
The digital rupee would also be the only blockchain-based currency free from the 30% tax. This way, the government aims to promote the adoption of the CBDC while discouraging the use of crypto.
However, the Indian population is adamant about using crypto regardless of its government’s outlook, viewing it as a solution to the shortcomings of fiat currencies.
Hong Kong’s Support for Crypto Businesses
In contrast to India, Hong Kong’s Securities and Futures Commission (SFC) plans to fast-track crypto exchange licensing.
Currently, only three exchanges operate under full license in Hong Kong. The SFC aims to grant licenses to another 14 platforms by year-end, prioritizing on-site inspections and direct discussions with senior management over tedious paperwork.
The SFC will also launch a consultative panel for digital assets trading services in early 2025. The goal is to promote communication between industry players and policymakers. India could really benefit from taking a page out of Hong Kong’s book.
Russia’s Contradictory Stance
Russia, too, leans to the pro-crypto end of the spectrum, but not for the same reasons as Hong Kong.
Vladimir Putin signed a law advancing crypto’s use in international trade to bypass sanctions. Good news for the Russian crypto market, but not without trade-offs.
Under the new law, the Russian government extends oversight over crypto mining and trading activities. Notably, regulators can impose regional limitations or ban mining entirely based on regional needs.
Besides, the Federal Financial Monitoring Service and law enforcement gain unlimited access to crypto identifier addresses to track transactions.
Given that the digital ruble is on track for mass rollout in mid-2025, the government likely aims to create a more centralized crypto market, integrating into the traditional financial system.
Finding the Balance: Mission Impossible
India remains on the fence regarding crypto regulations. On the one hand, banning it would mean stifling innovation and triggering public backlash. On the other hand, crypto hinders the adoption of the digital rupee and bypasses the central bank’s oversight.
The same can be said for Russia, which clearly recognizes crypto’s benefits yet still imposes harsh regulations.
How can governments strike a balance? Perhaps by collaborating with crypto industry players like Hong Kong’s policymakers.
References
- What Is Digital Rupee? How Is It Different From Cryptocurrency? (Forbes)
- Can the Digital Ruble Shield Russia From Western Sanctions? (Carnegie)
- Russia turns cold on cryptocurrencies (Reuters)
