Washington/ New Delhi: In a move that has stirred excitement among crypto entrepreneurs worldwide, former U.S. President Donald Trump recently met with global cryptocurrency leaders, reiterating his vision of making the United States the dominant force in the crypto world. Trump’s discussions included exploring the potential of incorporating cryptocurrency into the country’s foreign exchange reserves, a proposal that has intrigued investors and policymakers alike.
Indian Crypto Community Reacts with Enthusiasm
The Indian crypto community has responded positively to these developments, seeing it as an opportunity for broader global acceptance of digital currencies. However, India’s central bank, the Reserve Bank of India (RBI), remains steadfast in its cautious stance on cryptocurrency.
The Indian Finance Ministry, in alignment with the RBI, is unlikely to take any hasty steps toward granting legal recognition to cryptocurrencies. A senior official confirmed that any decision in this regard will be taken only after a thorough assessment of the upcoming report by an RBI-constituted working group. The report, expected soon, will provide insights into the feasibility and risks associated with virtual currencies.
Government’s Persistent Concerns Over Cryptocurrency
A senior government official familiar with policy deliberations emphasized that the concerns surrounding cryptocurrency remain unchanged. “Our opposition to cryptocurrency stems from the fact that it does not qualify as a currency. No authority issues it, nor does any entity bear its responsibility,” the official stated. “As such, it cannot be classified as either currency or a financial asset.”
The official further explained that while financial assets like shares, bonds, and fiat currencies are backed by responsible institutions, cryptocurrencies operate without such backing. Additionally, there is no conclusive research proving that cryptocurrencies can sustain an entire economy. The RBI maintains that unless proven otherwise, private cryptocurrencies cannot be deemed a viable financial instrument.
Former RBI Governor Warns of Risks
Former RBI Governor Dr. Shaktikanta Das has repeatedly expressed his concerns over cryptocurrency. In an October 2024 lecture at the Peterson Institute for International Economics, he stated, “Cryptocurrency should never dominate the financial system due to the immense risks involved. It poses serious monetary risks and threatens the banking sector. If left unchecked, it could undermine a central bank’s control over money supply.”
Due to strong opposition from the RBI, the Indian government has had to reconsider its stance on virtual currencies. A previous inter-ministerial committee led by former Finance Secretary Subhash Chandra Garg had, in 2019, even recommended legislation to ban virtual currencies in India.
U.S. Government’s Crypto Push and India’s Response
Government representatives have acknowledged the U.S. government’s push to promote cryptocurrency but reiterated that India will base its decisions on RBI recommendations. It remains to be seen whether the RBI’s working group will propose a middle ground or maintain its rigid stance against cryptocurrencies.
The broader question also remains: how will a major economy like the U.S. integrate Bitcoin and other virtual currencies into its financial system? While the U.S. has hinted at including cryptocurrencies in its reserves, Indian experts remain skeptical about how such an asset could be incorporated into a country’s forex reserves.
Understanding Cryptocurrency
Cryptocurrency is a form of virtual or digital currency that exists solely in digital form, without oversight from any government, central bank, or regulatory authority. The process of managing cryptocurrency transactions is known as ‘mining,’ which relies on specialized software and hardware.
India’s Stance: Regulation Over Prohibition
Popular cryptocurrencies such as Bitcoin, Dogecoin, and Ethereum continue to be traded in India, despite regulatory uncertainty. The Indian government has not imposed an outright ban but has subjected crypto earnings to a 30% tax under the Income Tax Act. However, the absence of a comprehensive regulatory framework keeps investors on edge, as India treads cautiously in the evolving crypto landscape.
