I had my first policy encounter with cryptocurrencies in 2017 when I joined the Ministry of Finance as secretary, Department of Economic Affairs (DEA). A committee led by the special secretary, DEA, had made a villain out of the cryptocurrencies. The RBI was, in any case, issuing press releases for three consecutive years, warning of the dangers of cryptocurrencies.
The committee had suggested a virtual outlawing of cryptocurrencies in India. The innovation of blockchain technology, on the other hand, was the subject of policy and technology discussions the world over. Banning cryptocurrencies outright seemed like throwing the baby of blockchain technology out with the bathwater of cryptocurrencies. I wanted some time to study the matter further. I requested the then Finance Minister, Arun Jaitley, not to accept the committee’s recommendations and to constitute another group under my chairmanship to examine the whole matter afresh and in depth. The finance minister agreed.
The new group, with the participation of the deputy governor, RBI; chairman, SEBI; chairman, CBDT; secretary, MEITY; and a few others, and ably assisted by a technical team of think tank NIPFP, finally resulted in a comprehensive report on the subject and a draft bill. The RBI did not want cryptocurrencies in India as it felt that cryptocurrencies would queer the pitch for its currency and monetary management. While SEBI was not averse to letting in trading in crypto assets, its preference was not to be their regulator. The morphing of Bitcoin from a cryptocurrency to a formidable crypto asset had made the RBI believe that anything crypto is evil. With great difficulty, we came up with the Bill ‘Banning of Cryptocurrency and Regulation of Official Digital Currency Bill, 2019’. The Bill’s central proposal was for the Government of India and RBI to come up with an official digital rupee to obviate the need for any private cryptocurrencies, which could be banned.
The Bill was neither conceptually sound nor a very well-drafted one. It proposed a complete ban on cryptocurrencies and other associated processes like mining etc. The Bill did not suggest any law or framework for the regulation of trading in crypto assets. The call for an official digital currency showed good intent, but the path was not well thought out. The Bill was placed in the public domain. It met with fierce criticism from the crypto community of tech-savvy youth, mesmerised by the promise of mining Bitcoins and trading in crypto assets.
The government gave notice twice in 2020 to introduce the Bill in Parliament, substantially in the same form recommended by the committee, but could not do so. Later, it junked the Bill and started talking about bringing a paper on the subject. The paper never came out. In between, while presiding over the G-20 Presidency in 2022, India tried to rope in the IMF and others to produce an internationally acceptable regulatory framework for cryptocurrencies. That did not yield much either. The Indian government remains at a crossroads in 2025, as it was in 2020.
The Government of India effectively refused to regulate the cryptocurrency trade. The RBI asked the regulated financial system not to have any truck with cryptocurrency traders and exchanges. As there was no law in the country banning such businesses, the Supreme Court rightly declared that the RBI’s dictates were unlawful. The banks began maintaining a passive distance from the cryptocurrency players.
Quite a few cryptocurrency enthusiasts established private cryptocurrency exchanges. Operating in an environment of no regulations and trading in cryptocurrencies launched outside India, these exchanges could only build weak security, settlement, and consumer protection protocols and systems. India’s second-largest cryptocurrency exchange, WazirX, suffered a hack of about $230 million, wiping out 45% of the total cryptocurrencies in its custody. Recently, the largest cryptocurrency exchange, CoinDCX, suffered another hack with $45 million drained out from its liquidity pool assets. Indian cryptocurrency exchanges are functioning with their backs to the wall, in an environment of the highest level of risk.
While the government did not legislate to define crypto assets and regulate them, it did bring virtual digital assets (VDAs)—both blockchain-based cryptocurrencies and centralised database-type digital tokens—within the purview of income tax. A 1% tax deducted at source (TDS) was imposed on the gross value of cryptocurrency traded. In addition, profits from any cryptocurrency trade were taxed at the highest capital gains taxation rate of 30%, without allowing any set-off, including for the loss suffered on another cryptocurrency trade. This harsh treatment forced some cryptocurrency exchanges to move abroad. Most investors also shifted their crypto assets and trading to foreign crypto exchanges. Turnover in Indian cryptocurrency exchanges collapsed. Whatever cryptocurrency assets remained in the exchanges witnessed low trade, susceptible to security risks and hacks.
The RBI Act was amended in 2022 to allow it to issue Central Bank Digital Currency (CBDC). The RBI came up with a highly flawed CBDC design with two digital rupee classes—retail and wholesale. The wholesale CBDC, after being used for the settlement of some sample types of trades in government securities on the RBI’s own bond trading platform, has been quietly shut down. No single-rupee-equivalent wholesale CBDC was issued and outstanding as of March 31, 2025. The retail CBDC is also quite moribund. The experiment to introduce the digital rupee as CBDC in India has been botched.
With negligible trading in exchanges and no digital CBDC in operation, cryptocurrencies in India stand effectively (though not legally) banned.
Many private entrepreneurs, especially in the US, brought out stablecoins pegged one-to-one with the US dollar—USDT (Tether), Ethena USDe, DAI, and so on. These stablecoins promised efficient international payments at a fraction of normal costs, using blockchain cryptocurrency networks. With different degrees of assurance, the stablecoins also sought to assure the safety of US dollars invested in buying the stablecoins, with US dollar-backed reserves. These stablecoins could establish themselves as a kind of true international currency. The use of these unregulated private stablecoins remained small, though.
The US has now passed the GENIUS Act to legitimise and regulate privately issued stablecoins. The law also sets broad rules to protect dollars invested in regulated stablecoins by requiring regulators to ensure those funds are invested in approved assets. It is quite likely that the business of stablecoins will become quite mainstream soon. International trade, payment, and settlement will increasingly shift to US$ stablecoins, substituting US$ and other international currencies. Realising the potential of this new monetary force, China has also initiated the issuance of ‘renminbi’ stablecoins from Hong Kong. Many countries are following suit, with some adopting trading and payments in US$-based stablecoins.
The Indian government and RBI have not taken any cognizance of stablecoin development. There does not appear to be any move on their part to allow the issuance of rupee stablecoins. This passivity is unlikely to last very long. Sooner or later, the RBI will be forced to accept the reality of US$ stablecoins.
Bitcoin has become a highly valued virtual asset. A Bitcoin trades at more than $1,00,000 these days. Bitcoin is also increasingly becoming a part of mutual funds and institutional asset bases, including monetary authorities and financial institutions. Many other crypto businesses with a native cryptocurrency—e.g. Ethereum—also exist. These have acquired, and are continuing to acquire, the status of valuable crypto assets.
The US Congress has passed a law, the CLARITY Act, declaring cryptocurrencies as investment commodities. The CFTC has been designated as the regulator. The regulatory system for crypto assets is on the anvil.
The stablecoins are here to stay. Increasingly, more and more international trade, settlement and payments will shift to stablecoins.
Crypto business and assets are also a reality. These assets are now valued at over $4 trillion, nearly matching the market capitalisation of India’s stock market.
Let India shun the fear of the unknown and the new. Creating a legislative framework for recognising the crypto assets and their trading, and also for establishing a regulated ecosystem for the issuance of stablecoins as India’s international digital currency needs to be taken up as a priority.
Otherwise, we will fall behind in this emerging world of cryptos.
(The author is a former finance secretary of India, and also a writer, policymaker, and thinker)
