Is Crypto a Threat to Financial Stability? RBI Governor Raises Red Flag Again

India’s top central banker has once again raised red flags over cryptocurrencies, citing their potential to disrupt the nation’s financial stability. Reserve Bank of India Governor Sanjay Malhotra, during a press interaction following the RBI’s monetary policy announcement, expressed serious concerns over the risks posed by crypto assets in the absence of a robust regulatory framework.

"We are concerned about crypto because that can hamper financial stability and monetary policy," said Governor Malhotra, reiterating RBI’s long-standing apprehension toward digital currencies.

SC Steps In, Seeks Clear Crypto Policy

The Governor’s remarks come just weeks after the Supreme Court urged the Central Government to formulate a “clear cut” policy for cryptocurrency regulation, underscoring the growing economic implications of unregulated digital currencies. In a sharp observation, a Supreme Court bench likened cryptocurrency trading—especially Bitcoin—to “hawala” transactions, branding it as bordering on illicit trade.

Despite these observations, Governor Malhotra confirmed that there have been no recent developments on the policy front. A government-appointed committee, comprising members from RBI, SEBI, and the Ministry of Finance, continues to evaluate global practices and is currently preparing a discussion paper on the issue.

Crypto in India: Taxed but Not Legalised

India’s crypto conundrum remains tangled. While not officially illegal, cryptocurrencies continue to operate in a regulatory grey area. The government imposes:

• A 30% flat tax on crypto gains,

• 1% TDS on trades, and

• GST on crypto exchanges,

...but these measures do not amount to legalisation.

Currently, crypto is only governed under anti-money laundering laws, leaving a policy vacuum that industry stakeholders and investors have long asked the government to address.

Flashback: RBI’s 2018 Ban Quashed by SC

The debate over crypto regulation is not new. In 2021, the Supreme Court overturned the RBI’s 2018 circular that had banned banks from servicing crypto-related businesses. Since then, the crypto industry has operated under a cloud of uncertainty—taxed, watched, but not fully regulated.

The upcoming discussion paper from the inter-ministerial group will open the floor for feedback from stakeholders. But with the RBI warning of potential threats to monetary policy and financial stability, the road to crypto regulation in India appears cautious and heavily scrutinised.