India central bank cautious in its approach to stablecoins, cryptos, chief says

NEW DELHI: The Indian central bank is adopting a cautious approach towards cryptocurrencies and stablecoins, Reserve Bank of India Governor Sanjay Malhotra said on Thursday.

“Stablecoins, cryptos, they have a huge risk, and so we are adopting a very cautious approach towards it,” he said in a memorial lecture delivered at the Delhi School of Economics.

“But at the same time, when it comes to digital innovations like UPI (unified payments interface) or digital lending, our stance has been very accommodative and very enabling.”

The rising popularity of U.S. dollar stablecoins will be an important phenomenon next year and could raise challenges for monetary policy globally, India’s Chief Economic Adviser V. Anantha Nageswaran said late last month.

Globally, U.S. dollar-backed stablecoins have amassed a market capitalisation of over $300 billion, while the overall market cap of crypto tokens has climbed to more than $4 trillion, according to industry data provider CoinGecko.

Last month, when speaking at an International Monetary Fund and World Bank event, Malhotra had said the RBI wants to promote its central bank digital currency over stablecoins or cryptocurrencies.

Malhotra said the government has to take a final view whether crypocurrencies should be regulated or not.

“The government has to take a final view. There is a working group that was set up earlier, and they will take a final call as to how, if at all, crypto is to be handled in our country,” Malhotra said when responding to a question.

India is leaning towards not creating legislation to regulate crypto and will instead maintain partial oversight, fearing that bringing the assets into its mainstream system could raise systemic risks, Reuters reported in September.

Global crypto exchanges at present can operate in India after registering locally with a government agency tasked with due diligence to check money laundering risks. Punitive taxes are imposed on gains from cryptocurrencies.

However, the central bank has repeatedly cautioned against the risks in dealing with them, leading to a near freeze in trading between the country’s formal financial system and cryptocurrencies.