India’s G20 presidency is poised to leave a significant mark on the global financial landscape, potentially paving the way for a universal framework for regulating crypto assets.
Under India’s leadership, the G20 leaders are set to deliberate on more effective regulation of crypto assets, recognising the need for collaborative efforts in regulating these digital assets.
Regulating crypto assets effectively requires a collective approach, as these assets transcend national borders. The initiative has incorporated insights from international organizations, such as the International Monetary Fund (IMF), which provided guidance on the macroeconomic implications of crypto assets, and the Financial Stability Board (FSB), focusing on regulatory concerns. India has also underscored the specific risks associated with crypto assets for emerging markets and developing economies.
IMF-FSB paper
The synthesis paper produced jointly by the IMF and FSB, ahead of the G20 leadership summit during India’s presidency, has presented essential recommendations. It cautions against granting crypto assets official currency or legal tender status while discouraging a blanket ban on activities related to crypto assets, acknowledging the technical and cost challenges such a ban would entail.
The report advises central banks against including crypto assets in their official reserves, citing potential risks to monetary and global financial stability. It also emphasises the importance of clear tax treatment for crypto assets and the protection of monetary sovereignty.
Additionally, the synthesis paper underscores the need for measures to mitigate excessive capital flow volatility and the associated macro-financial risks posed by crypto assets in emerging markets and developing economies. These countries may face heightened risks due to less developed tax frameworks, a substantial unbanked population, and higher cross-border transaction costs.
Regarding the fiscal implications, the report points out that granting legal tender status to crypto assets could expose government revenues to exchange rate risk. It further highlights that crypto assets do not meet the fundamental criteria of currency, lacking attributes like being a unit of account, a means of exchange, and a store of value.
Will a crypto ban come?
Banning crypto-related activities is considered a challenging option, with the report emphasising the need for robust macroeconomic policies and effective regulatory frameworks to address the risks posed by crypto assets. The report advocates for comprehensive regulatory and supervisory oversight of crypto assets, recommending measures to minimise fiscal and operational risks for governments when officially using crypto assets.
