Why Is India Outlawing Cryptocurrencies?

By Swati Kishore

If you are a crypto trader or enthusiast who lives in India, then the question of why India is outlawing cryptocurrencies must plague your mind now and then.

Even though the Asian nation has not yet released a clear regulatory framework on digital currencies, however banning cryptocurrencies in India may just prove to be difficult for the government.

In this article, we will see the potential reasons for the countries purported outlawing of cryptos.

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Deceptive Nature of Cryptocurrencies

The government of India has so far been unclear on cryptocurrency regulations, however, lawmakers in the country are deeply divided over the fate of digital currency in the nation.

During the first few years of crypto’s popularity in India, the government more or less remained silent on the matter. However, it is interesting to note that during 2013, when Bitcoin was gaining popularity, the government had released warnings of risks associated with the crypto world.

The government stated that investors should be cautious as cryptocurrencies can be ‘deceptive in nature’ and sometimes be used purely as ‘speculative instruments’.

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Prevention of India’s Capital from Flowing into Foreign Markets

While we keep wondering if India will finally release a regulatory framework for crypto industry, there are still many factors that make a point for anti-cryptos to outlaw cryptocurrencies in the nation. One of them is the loss of international remittances.

International remittances still account for a large portion of India’s economy. The demand for global money transfers is huge, but the amount of money that can be sent outside a country is limited.

Crypto-friendly people are circumventing such money channels to transfer money through the Blockchain technology. It can potentially lead to more money flowing into foreign exchange markets.

In such a scenario, the government is afraid that the outflux of money could adversely affect the value of India’s national currency- the Rupee.

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Potential Threat to the Traditional Financial System

As discussed above, the global money transfer business forms a large portion of India’s economy. However, it is also interesting to note that a large population of the country is currently unbanked.

The adoption of cryptocurrencies could lead to competition between the crypto markets and the traditional banking system. More and more people would choose crypto for money transfers since the process is more convenient, faster, and eliminates intermediary fees.

Notably, the government uses commercial banks to regulate markets and issue policies. The outflux of capital to the crypto market, which surpasses the supervisory system of the central bank, could overburden the Reserve Bank. It would lead to problems in disciplining the financial ecosystem.

To conclude, even though India’s anti- crypto stance could potentially affect its position in the Blockchain race, however, the country still remains largely anti-crypto owing to the potential threats faced by the country’s economy.

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