Crypto Regulation in Limbo as India Fears ‘Dollarization’ Concerns

India may not be in a hurry to finalise a regulatory framework for cryptocurrencies… which could lead to ‘dollarization’ of the economy,” said a senior government official .

Why India is Holding Back

• Government authorities are reluctant to declare cryptocurrencies as legal tender, citing global uncertainty over regulation. They prefer to observe how other countries respond rather than act unilaterally .

• Almost all cryptocurrencies are dollar-denominated and issued by foreign entities, raising concerns that widespread adoption could trigger dollarization—a shift away from the rupee, threatening India’s monetary sovereignty .

Central Bank Concerns Reaffirmed

• RBI briefed the Parliamentary Standing Committee in 2022, stating that crypto’s dollar-linkage could replace the rupee in domestic and cross-border transactions.

• Officials warned cryptocurrencies could undermine RBI’s control over money flow, especially if used as an alternate medium of exchange .

Global Regulatory Uncertainty

• With no consensus internationally on crypto regulations or legal status, India wants to avoid a piecemeal approach. A senior official noted, “Unless we know how other countries are moving forward… we can’t take unilateral measures.” .

What This Means for Crypto in India

• India remains tacitly cautious—not banning cryptocurrencies, but refraining from granting them legal status.

• The government is delaying a clear regulations framework, opting to observe how major economies evolve in their approach.

• With the global market cap at US $3.45 trillion—up 28% in a year—anything may happen next .

Takeaway

• India’s stance: Wait-and-watch on crypto—fears of dollarization and policy disruption are holding the government back.

• For now: Cryptos remain neither approved nor banned, but carry significant regulatory uncertainty.

• Watch this space: As other countries clarify their stance, India may reassess regulatory options.

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