India’s Central Bank Revives Push to Isolate Banks From Crypto

India has taxed cryptocurrency gains at 30% since 2022 and imposes a separate 1% withholding tax on transactions, but it has not granted digital assets legal-tender status. The Reserve Bank of India has long warned that crypto payments could facilitate tax evasion and capital flight while creating financial risks. It therefore argues that the banking system should be insulated from cryptocurrencies.

The RBI recently submitted a report to India’s parliament recommending a ban on the use of cryptocurrencies for payments and settlement, as well as limits on banks’ exposure to digital assets. The central bank warned that applying traditional regulation could lend legitimacy to speculative assets. It nevertheless argued for distinguishing between unbacked cryptocurrencies and regulated tokenized financial instruments backed by tangible assets.