India may follow US' cue on cryptocurrencies

Back in March 2023, India extended anti-money laundering (AML) and counter-terror financing (CTF) standards to crypto-assets and intermediaries.

The government's stance on cryptocurrency will likely take into account the shift in the United States approach under President Donald Trump, who took office in late January, sources told Moneycontrol.

Since 2023, an inter-ministerial group, led by the finance ministry, has been working on a discussion paper on cryptocurrency to outline the government’s stance.

"Global situation is changing, so the approach may have to change," one of the sources said.

Another government official added, “We are in a wait-and-watch mode on what President Trump decides.”

The discussion paper might take into account a shift in approach in some major economies and jurisdictions, finance and economic affairs secretary Ajay Seth told Moneycontol earlier.

Crypto trading is booming in India though cryptocurrencies are not recognised as legal tender. There is no regulatory framework for cryptocurrency operators but that hasn’t stopped Indians from putting their money in bitcoin, ethereum, dogecoin and other such currencies.

If the government decides to take a cue from the US, it would be a major shift in stance from the then Reserve Bank of India (RBI) governor Shaktikanta Das's statement in October that cryptocurrencies pose a significant risk to financial and monetary stability as well as the banking system.

The discussion paper will have suggestions on the remit of regulation for cryptocurrencies and seek comments and views from relevant stakeholders on the ideas outlined in it.

The RBI and the Securities and Exchange Board of India are among the regulators who are part of the group sharing inputs for the paper.

The RBI though remains firm on its approach to crypto, the source said. In 2018, the central bank prohibited lenders and other financial intermediaries from dealing with crypto users or exchanges. The Supreme Court struck down the ban in 2020.

“The RBI believes that cryptocurrency is not a currency, it is not backed by an issuer and it is not a financial asset either, since it does not have any underlying flow or associated with any liability. The central bank is of the view that emerging economies like India can take a different view on this matter,” the source added.

Though there are different points of view in the interministerial group, the discussion paper is close to fruition and may underline any technological benefits associated with the asset, sources said.

The Trump administration has been more supportive of cryptocurrencies than the previous government. Promising to make the US the “crypto capital of the world,” Trump has emphasised the need to embrace digital assets to drive economic growth and technological leadership.

In his first week in office, Trump signed an executive order to promote United States leadership in digital assets such as cryptocurrency by creating a strategic bitcoin reserve and a digital assets stockpile.

Recently, the US Securities and Exchange Commission's crypto task force held its first public meeting on how securities laws might apply to digital assets as the Trump administration looks to overhaul cryptocurrency regulations, Reuters reported. The task force has been asked to develop rules and guidance for crypto.

India’s decision to release a discussion paper came much before the shift in the stance of the US. The move came after G20 member countries, under India’s presidency in 2023, endorsed guidelines put forth by the International Monetary Fund (IMF) and the Financial Stability Board (FSB).

The roadmap for regulating crypto assets, proposed by the FSB and the IMF, was adopted by the finance ministers and central bank governors of G20 nations in October 2023.

In March of that year, India had extended anti-money laundering and counter-terror financing standards to crypto-assets and intermediaries.