Needed, a Crypto Strategy

(Source: Editorial Page, The Indian Express)

Topic:GS2 (International Relations, Governance), GS3 (Economy, Financial Technologies)

Context

Recent moves—such as Pakistan partnering with a global crypto firm and Donald Trump endorsing crypto in his campaign—highlight the growing geopolitical importance of digital currencies. These developments underscore the urgency for India’s crypto strategy to proactively address regulation, innovation, and national interest in this evolving landscape.

Global Context: Shifts in Crypto Diplomacy

Pakistan’s Move:

• • Collaborated with World Liberty Finance Inc. to adopt blockchain systems.

  • Aimed at enhancing financial documentation, cross-border trade, and taxation systems.

  • Viewed as an attempt to bypass traditional institutions like the IMF and expand digital sovereignty.

Donald Trump’s Campaign Stand:

• Endorsed decentralised finance as part of economic strategy.

• Aimed to position the US as a global leader in crypto innovation.

• Pitched as a counter to “centralised control” and appeal to young, tech-savvy voters.

Strategic Implications for India

India’s Cautious Approach:

• The RBI remains sceptical of private cryptocurrencies due to volatility, financial frauds, and monetary risks.

• India has launched the Digital Rupee (CBDC) as a sovereign digital currency.

Also Read: The Indian Express Editorial 28 May 2025

Need for a Comprehensive Strategy:

• Balance between innovation and regulation.

• Address legal ambiguities (currently, private crypto is not banned but lacks a regulatory framework).

• Ensure investor protection and systemic stability.

National Security Concerns:

• Crypto can be used for terror financing, money laundering, and tax evasion.

• Strategic rival nations may use fintech diplomacy to influence regional financial ecosystems.

Diaspora & Innovation Advantage:

• Large Indian-origin presence in global crypto firms (e.g., Polygon, Coinbase) offers a soft power edge.
• India’s startup ecosystem can benefit from blockchain innovations in logistics, finance, and governance.

Way Forward/Recommendation

• India’s crypto strategy must focus on enacting a well-defined regulation bill to clarify the legal use and protection mechanisms.

• Foster innovation in blockchain applications beyond currencies — land records, governance, health data.

• Coordinate globally via G20, FATF, and IMF forums on crypto taxation and transparency standards.

• Strengthen RBI’s pilot CBDC and integrate it with UPI and e-governance.

• Build capacity in enforcement agencies to monitor crypto-related crimes.

Practice Question: “With global powers embracing crypto-financial systems, India must develop a nuanced digital finance strategy balancing innovation and sovereignty.” Discuss. (GS3 – 250 words – 15 marks)