India backs blockchain but remains cautious on cryptocurrency risks
Reserve Bank of India (RBI) Governor Sanjay Malhotra has reaffirmed the country’s cautious stance on cryptocurrencies, distinguishing them from the broader potential of blockchain technology. Speaking at the Kautilya Economic Conclave on October 3, Malhotra emphasized that while India supports distributed ledger technology (DLT) and tokenization, the risks to monetary sovereignty, monetary policy, and capital flows make cryptocurrencies a different concern.
The RBI is actively exploring DLT and tokenization, using these technologies internally and through public-private partnerships. Malhotra highlighted concerns about the interchangeability of different forms of money and the impact of cryptocurrencies on capital controls, particularly in emerging economies like India. He argued that cryptocurrencies do not address any pressing domestic payment issues, given India’s already efficient payment infrastructure.
India’s approach now clearly separates cryptocurrencies from tokenized financial assets and central bank digital currencies (CBDCs). The RBI sees potential in the latter two without endorsing private cryptocurrencies as an alternative monetary system. This stance aligns with a 2019 government committee report that supported DLT applications in areas like loan tracking and fraud detection while advocating strict controls on private cryptocurrencies.
Despite the caution, cryptocurrencies remain legal in India, operating under taxation and anti-money-laundering regulations. On September 9, India’s Financial Intelligence Unit issued non-compliance notices to 15 virtual digital asset service providers, including Weex and WOO X, reinforcing the country’s regulatory stance. The RBI’s position reflects a balanced approach: promoting blockchain innovation while maintaining oversight over crypto assets that could threaten financial stability.