Decrypt: Can India take lead in cryto regulation?

CHENNAI: The recently-con- cluded G20 meet in Bengaluru has finally got the ball rolling. Discussions and debates over multiple is- sues have begun. Especially in the crypto regulatory space. The IMF and the US have backed a proposal by G20 president India to regulate cryptocurrencies as the group’s finance ministers wrapped up two days of negotiations. The US Treasury secretary Janet Yellen said it was “essential” to have a solid regulatory framework and stressed on the importance of putting in place a robust regulatory framework as she called for collaboration with other governments, including India.

The US Treasury secretary Janet Yellen said it was “essential” to have a solid regulatory framework and stressed on the importance of putting in place a robust regulatory framework as she called for collaboration with other governments, including India.

With the underlying emphasis to standardise regulation, international organisations plan to present a joint document at the fourth Finance Ministers and Central Bank Governors Conference in October 2023. The Indian presidency has proposed a joint technical report by the IMF and the FSB that would synthesise the macro- economic and regulatory aspects of cryptoassets in order to supplement the ongoing discussion about the need for a policy framework. This would facilitate the development of a comprehensive and coordinated policy approach to crypto assets.

Recently, the IMF presented a Nine Point Crypto Action Plan Action Plan, that includes key regulatory recommendations.

The first recommendation was to refrain from making cryptocurren- cies legal tender. It stated that after a number of cryptocurrency exchanges and assets failed over the past couple of years and therefore such initia- tives have become a priority for authorities and that continuing to do nothing is now “untenable”. The document, titled “Elements of Effective Policies for Crypto Assets,” was addressed by the Executive Board and offered recommendations to IMF member nations on essential elements of a suitable policy response to crypto assets.

It further highlighted the effects of crypto adoption on a nation’s economy’s internal and external stability as well as the makeup of its financial system and emphasised that although some of the advantages of crypto as- sets have already been realised, such as cheaper and faster cross-border payments, more integrated financial markets, and increased financial inclusion. It reiterated the need to safeguard monetary sovereignty and stability by improving monetary policy frameworks and not issue crypto as- sets official currency or legal tender status.

Other recommendations included preventing excessive capital flows, adopting clear tax regulations and laws regarding crypto assets, and creating and enforcing oversight standards for all participants in the cryptocurrency market.

They further recommended that nations should build up mechanisms to track cryptocurrency’s influence on the stability of the international monetary system as well as multilateral agreements to strengthen oversight and enforce laws and proposed the ideas and concurred that their broad implementation would possibly undermine the efficacy of monetary policy, circumvent capital flow management measures, and raise fiscal risks.

The G20 forum has ignited a wider conversation about crypto assets, and raised a number of important policy issues that regulators and politicians need to carefully consider for not only assessing how crypto assets would affect the whole economy but also an existential question about whether crypto assets are really the best way to address the problems with current international financial systems. India, take the lead here.