The Indian government is preparing to ban private cryptocurrencies and allow the country’s central bank to launch an official digital currency.
The proposed legislation follows a crackdown on cryptocurrencies in China, where financial regulators and the central bank have made all digital currency transactions illegal.
The Indian proposals were flagged in a parliamentary bulletin listing upcoming legislation which included one paragraph on “The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021”.
The accompanying description of the bill appeared to leave some room for using cryptocurrencies, however. “To create a facilitative framework for creation of the official digital currency to be issued by the Reserve Bank of India,” it read. “The bill also seeks to prohibit all private cryptocurrencies in India, however, it allows for certain exceptions to promote the underlying technology of cryptocurrency and its uses.”
India’s prime minister, Narendra Modi, said last week that cryptocurrencies could “spoil our youth” and the country’s central bank has repeatedly warned, in line with other central banks, they could pose “serious concerns on macroeconomic and financial stability”.
In September, El Salvador became the first country to accept a cryptocurrency, bitcoin, as legal tender. But major economies have generally been wary of digital currencies, with the deputy governor of the Bank of England, Sir Jon Cunliffe, warning that they could cause financial meltdown. Nonetheless, the BoE and the Treasury are to launch a formal consultation into a UK central bank digital currency next year.
The India move triggered heavy selling in the country’s digital currency markets, with the dollar-linked stable coin tether (USDT) slumping 25% to nearly 60 rupees on Wednesday. In the global markets, the price of bitcoin – the signature cryptocurrency – fell 2.7% to $56,171.
Laith Khalaf, head of investment analysis at investment platform AJ Bell, said: “India’s plan to ban cryptocurrencies has not wrought the same damage on the bitcoin price as China’s summer crackdown, but it nonetheless marks yet another stumbling block in crypto’s advancement as an economic force in the real world.”
Khalaf added that El Salvador’s embrace of bitcoin appeared to be an outlier and it was “inevitable that cryptocurrencies will continue to encounter either greater regulation or prohibition in more jurisdictions around the world”.
On Tuesday, the International Monetary Fund warned El Salvador against its rush into cryptocurrency, a day after the country announced proposals to develop the first “bitcoin city”.