top of page

Why is government wary of Cryptocurrency?

Cryptocurrency is a type of digital currency that may be used to buy and sell goods and services over the internet. Companies issue currency in the form of tokens which can be traded for their products.

Cryptocurrency has been the subject of debate and news since its inception. The cryptocurrency's introduction has been heralded by supporters as the start of a new and more equal monetary system. Governments all around the world are keeping a wary eye on Bitcoin's progress. El Salvador, for example, has adopted it as a currency. However, major economies, including the US, refuse to accept it as legal cash. They have compelling motives to do so.

Most traditional currencies are regulated by a centralized government, but crypto currencies are decentralized, i.e., they are created and transacted in open environments and rely on peer-to-peer networks. Since cryptocurrencies are unregulated in the country and are difficult to trace, posing tax on it becomes difficult, creating a threat for rupee and the fact that the users are anonymous, their claimed market value cannot be verified which can lead to money laundering and illegal activities. This makes it particularly attractive to criminals, because it’s sort of like the digital equivalent of cash: easy to hide, tough to trace.

If a large number of investors invest in digital coins rather than rupee-based savings like provident funds, the demand of the latter will fall. This will hamper the ability of banks to lend out money to its customers, which will eventually remove it from the role of "last-resort lender". Even former Reserve Bank of India's Governor Duvvuri Subbarao shared his opinions on this stating-"The central bank could lose control over money supply and inflation management if cryptocurrency is allowed in the country." Crypto is backed by algorithms and he believes the central bank might lose control over money supply and inflation management if cryptocurrency is allowed in the country. Keeping these problems in mind it was also suggested to ban crypto currencies, T Rabi Sankar, Deputy Governor, Reserve Bank of India (RBI) stated- "Banning cryptocurrency is perhaps the most advisable choice open to India and there are strong reasons to keep cryptocurrencies away from the formal financial system."

Current prospects

The continuation of cryptocurrency depended on the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, which was introduced in this winter session of Parliament in which the minister said, "I am not going to legalize it or ban it at this stage. Banning or not banning will come subsequently, when consultations give me input." Cryptocurrency was stated as a threat to macroeconomic and financial stability and investors were cautioned and advised to invest on their own risk.

Future prospects

Cryptocurrency being a modern era currency though influenced and fascinated the wave of investors but it still has its own disadvantages which cannot be ignored therefore it was further decided that Crypto will never be a legal tender. Legal tender means legally recognized payment instrument such as coins and banknotes which are accepted in settlement of debts. India will not be making any crypto-asset as a legal tender. Only 'Digital Rupee' of the Reserve Bank will be a legal tender in India.


Recent Posts

See All


bottom of page