Did India Derive its Fear of Crypto Adoption from the IMF?
Even though India’s drive for crypto adoption is huge, its high-rated tax can be derogative
India has become one of the biggest markets in Asia for crypto adoption and one of the fastest-growing in the world. The country has 15 homegrown cryptocurrency exchange platforms. Between 15 and 20 million people in India are estimated to own cryptocurrencies, with holdings totaling approximately US$6 billion (€5.31 billion), industry figures indicate. The market for cryptocurrency and blockchain technology has surged significantly in recent years, especially during the COVID-19 pandemic lockdowns, when much of the country’s population was forced to stay at home. The local crypto market exploded when the Supreme Court overturned a previous ban last year, growing 641% between July 2020 and June 2021, according to crypto currency research firm Chainalysis.
The top two leaders at the International Monetary Fund (IMF) discussed crypto regulation on the Foreign Policy Live podcast, published last week. IMF Managing Director Kristalina Georgieva and Deputy Managing Director Gita Gopinath were asked how governments should respond to the growing number of challenges facing the global economy, including cryptocurrency. Georgieva explained that the IMF separates digital assets into three types: “crypto-assets like bitcoin,” stablecoins, and central bank digital currencies (CBDCs).
The International Monetary Fund (IMF) has flagged significant financial risks over allowing the use of cryptocurrencies, as India deliberates with multilateral agencies and domestic institutions about a planned regulatory framework, said government officials aware of the discussions. India currently does not have a policy on digital assets, including cryptocurrencies such as Bitcoin and Ethereum. The absence of a policy has allowed people to own and trade in currencies and other digital assets, prompting the government to announce a 30% tax on digital trading.
Indian finance ministry officials are in talks with various stakeholders including the IMF, World Bank, Reserve Bank of India, and Securities and Exchange Board of India (Sebi). According to one of the Indian government officials cited above, the finance ministry has ruled out the use of cryptocurrency as an asset.
While the IMF did not comment on the specific discussions with India, its mission chief for India Nada Choueiri reported that crypto-assets posed significant risks, including financial stability. Crypto assets can also be misused for money laundering, terrorist financing, and other illegal activities. Unless effective regulatory measures are implemented, the crypto-asset ecosystem could face serious consumer protection challenges such as fraud and cyberattacks.