Governing the crypto ecosystem: key challenges faced by regulators in India

Governing the crypto ecosystem: G20 New Delhi Leaders’ Declaration and Communique by G20 Finance Ministers and Central Bank Governors

‘While cryptoassets are not yet a significant part of the global financial system, they have the potential to emerge as a source of systemic risk in specific jurisdictions if they gain traction for payments or retail investments’ noted the Synthesis Paper on ‘Policies for Cryptoassets’ (Synthesis Paper) developed by the International Monetary Fund (IMF) and Financial Stability Board (FSB) at the request of the Indian G20 Presidency. The Reserve Bank of India (RBI), India’s central bank has been similarly concerned about the macro-economic risks of private cryptocurrencies operating as ‘shadow currencies’.

Governments and regulators across jurisdictions have highlighted that a cross-border coordinated effort is the only effective way to regulate private cryptocurrencies. The seamless access to cryptocurrencies and cryptoassets over the internet allows for transactions that transcend geographical boundaries making regulation extremely challenging. Regulatory arbitrage triggered by varying legal frameworks has been a key problem faced by governments when looking to supervise the crypto economy.

Against this context, the Synthesis Paper has laid down high level recommendations for regulation and supervision of cryptoassets. The paper introduces common standards which may be adopted globally by regulators.

In October 2023, the high-level recommendations set out in the Synthesis Paper were adopted as a G20 roadmap on cryptoassets at the G20 Finance Ministers and Central Bank Governors meeting held in Morocco (G20 roadmap on cryptoassets). While calling for swift and coordinated implementation of the G20 roadmap, the meeting requested the IMF and FSB to provide regular and structured updates on the progress of implementation of the G20 roadmap on cryptoassets.

Regulation of cryptoassets in India

India’s position on regulating private cryptocurrencies has undergone some change. In 2018, the RBI prohibited banks from dealing in or allowing funds in bank accounts to be used for any crypto-based transactions which operated as a de-facto ban. The Supreme Court of India overturned the RBI prohibition, which then led to significant growth in the trading of cryptocurrencies, largely by retail investors.

In 2019, the Indian government released a draft bill on Banning of Cryptocurrency and Regulation of Official Digital Currency, which was never ultimately enacted as law. The government subsequently indicated that it would move away from its initial position supporting an outright ban of all private cryptocurrencies to one that supports regulation and supervision of the crypto economy.

The details around the regulatory framework for cryptoassets in India are still unknown but it will be aligned with the G20 roadmap on cryptoassets and will likely address the following broad parameters:

  1. Cryptocurrency as legal tender: private cryptocurrencies will not be recognised as legal tender in India. The only digital currency recognised as legal tender is the RBI issued digital rupee (eINR or E-Rupee) which is a tokenised digital version of the Indian rupee (INR). While Indian regulations may permit holding of cryptoassets as investments (akin to securities), the regulations will seek to address the macro-economic concerns linked to private cryptoassets operating as a substitute for legal tender.
  2. Use-case based approach: Indian regulations will need to contemplate the various use cases cryptoassets can potentially have. Cryptoassets are able to operate as assets, commodities, securities, utility tokens, and stored value instruments. The regulatory framework will need to address the unique challenges of regulating each such use-case. Amendments to several existing legislations governing securities, payment instruments, commodities, and investments will be needed.
  3. Regulation of intermediaries: while the crypto ecosystem is decentralised, there are still several intermediaries (such as virtual wallet providers and crypto-exchanges) which provide services to users allowing seamless access to the crypto ecosystem. Similar to conventional asset classes and payment products, where intermediaries involved in delivery of investment or financial products are regulated (depending on the exact role played by such intermediaries in the value chain), there is a need to regulate intermediaries operating in the crypto ecosystem. The scope of regulation will depend on the role played and control exercised by such intermediaries. Following from the FATF’s guidelines on regulation of virtual asset service providers, India has already amended existing regulations to cover virtual asset service providers within the ambit of AML and KYC laws. Virtual asset service providers are now required to register as a ‘reporting entity’ with the Financial Intelligence Unit – India and are required to comply with AML, KYC and reporting obligations in connection with transactions they facilitate.

Goals of regulation

The two key goals for a well-regulated and stable cryptoasset ecosystem in India will be to increase the reach of digital payments and to facilitate cross-border payment solutions. Cross-border payments has been one key area where cryptoassets have the potential to transform both the manner and cost of payment transactions. Given the easy access to cryptoassets through internet enabled devices, a well-regulated and stable ecosystem can potentially transform the retail payment landscape in the country, similar to the highly successful UPI payment system. Cryptoassets could also be potentially utilised to efficiently distribute public benefits and direct subsidies to beneficiaries.


Cryptoassets are able to leverage innovation in blockchain-based technologies and smart contracts to deliver financial products and services. India is at a critical stage in determining the future of its crypto economy. A nuanced and balanced regulatory framework will enable the Indian market to benefit from innovation in the crypto ecosystem, while effectively countering the financial risks linked to the use of cryptoassets.