India holds back on full crypto regulation over financial stability concerns

A government document reveals that India is unlikely to implement full crypto regulation, opting instead for limited oversight amid concerns over financial stability and payment system risks.

Summary

• The document warns that implementing a full crypto regulation framework could grant them legitimacy and make the sector systemic, while a complete ban would not stop peer-to-peer or decentralized trading.
• Authorities are particularly cautious about stablecoins, which could disrupt India’s Unified Payments Interface (UPI) and fragment national payment systems.

According to exclusive reporting by Reuters, a recent government document indicates that India is unlikely to introduce comprehensive legislation to regulate cryptocurrencies and will instead maintain partial oversight.

The document, seen by Reuters, cites concerns that integrating digital assets into the mainstream financial system could create systemic risks. It notes that “regulating cryptocurrencies would grant them legitimacy and may cause the sector to become systemic,” while a full ban wouldn’t prevent peer-to-peer trades or activity on decentralized exchanges.

Indian authorities are reportedly particularly concerned about stablecoins, noting that their widespread adoption could fragment the national payment system and disrupt India’s Unified Payments Interface (UPI).

India had previously considered introducing a bill to ban private cryptocurrencies in 2021 but did not proceed. In 2024, the government planned to release a discussion paper on crypto regulation but deferred the initiative, citing the need to review global regulatory developments first.

Currently, global crypto exchanges can operate in India after registering with a government agency to ensure compliance with AML regulations, and punitive taxes on crypto gains act as a deterrent to speculative trading. According to the document, investments by Indian residents in crypto total approximately $4.5 billion, a level that is not seen as a systemic threat to financial stability.