G20’s roadmap for crypto regulation
- October 14, 2023
- Posted by: OptimizeIAS Team
- Category: DPN Topics
G20’s roadmap for crypto regulation
Subject: Economy
Section: Monetary Policy
Why in the News?
- Adoption of the G20 Roadmap on Crypto Assets: Under India’s Presidency, the Finance Ministers and Central Bank Governors of the G20 nations have adopted a comprehensive roadmap for the regulation of crypto-assets, as proposed by the IMF and FSB.
- Preferential Regulatory Oversight: Rather than supporting a blanket ban, the roadmap emphasizes the necessity of comprehensive regulatory and supervisory oversight to ensure macroeconomic and financial stability.
- Implementation of FATF Standards: The roadmap advocates the implementation of Financial Action Task Force (FATF) anti-money laundering and counter-terrorist financing (AML/CFT) standards to mitigate potential risks associated with the misuse of crypto-assets for criminal or terrorist activities.
- Special Considerations for Emerging Economies: The synthesis paper recommends that emerging economies, in particular, take additional targeted measures to address specific risks that they may face. These measures should be adapted based on the unique circumstances and capacity constraints of each jurisdiction.
- Volatility and Market Trends: Crypto assets have exhibited significant volatility, with several episodes of sharp appreciation and subsequent steep price reversions. For instance, in 2021, the total market value of crypto-assets experienced substantial growth but subsequently faced a significant downturn in 2022.
The G20’s emphasis on regulatory oversight and compliance with AML/CFT standards signifies a concerted effort to address potential risks associated with crypto-assets and ensure financial stability on a global scale.
IMF and FSB Paper Recommendations:
The IMF and FSB highlight the challenges associated with banning cryptocurrencies, emphasizing the importance of regulatory oversight and compliance with anti-money laundering standards. They advocate for monitoring licensed crypto-asset issuers and service providers to bridge information gaps and ensure effective oversight of cross-border crypto activities.
What is Cryptocurrency?
Cryptocurrency is a digital or virtual form of currency that operates on decentralized blockchain technology, utilizing cryptography for security. It is not regulated by any central authority and often exhibits high price volatility.
What are the difference from Central Bank Currencies:
Unlike central bank currencies, cryptocurrencies are not issued or governed by a central authority such as a government or central bank. They are decentralized, globally accessible, and typically have a limited supply, making them immune to government manipulation.
Regulatory Framework in India:
The regulatory environment in India has experienced various shifts, including a ban on cryptocurrency transactions by the Reserve Bank of India (RBI) in 2018, subsequently overturned by the Supreme Court in 2020. In the 2022-23 Union budget, India proposed a 30% tax framework for cryptocurrency-related income and transactions.
G20’s Endorsement:
The G20 Leaders Declaration has endorsed the FSB’s recommendations and welcomed the paper’s roadmap for a comprehensive policy and regulatory framework concerning cryptocurrencies.
About FSB
The Financial Stability Board (FSB) is an international organization established in 2009 that monitors and provides recommendations on global financial systems, succeeding the Financial Stability Forum. Its headquarters are in Basel, Switzerland.
About Central Bank Digital Currency (CBDC)
A Central Bank Digital Currency (CBDC) is a digital form of a country’s fiat currency that is issued and regulated by the country’s central bank.
It operates as a legal tender and is designed to provide a secure and efficient medium of exchange, aiming to offer an alternative to physical cash and other forms of digital payments.
The CBDC is managed and supervised by the central bank, ensuring its stability and reliability.
The introduction of CBDCs by central banks is often seen as a response to the growing demand for digital currencies and the increasing adoption of digital payment systems in the modern financial landscape.
By offering a digital alternative to physical cash, central banks aim to provide a secure and convenient means of digital transactions while maintaining the stability and credibility of the national currency.
OECD’s Crypto-Assets Reporting Framework (CARF)
- Establishment of a framework for cross-border reporting and exchange of information on crypto assets.
- Aims to address the borderless nature of crypto assets, emphasizing the need for international collaboration in regulation and prevention of misuse.
Anticipated Benefits of CARF Implementation:
Enforcement of reporting obligations for entities and individuals involved in crypto asset services.
- Promotion of a standardized regulatory environment for crypto asset usage and investments globally.
Impact on India:
- CARF introduction could facilitate the development of a comprehensive taxation and regulatory structure for crypto assets in India.
- Enables India to establish a robust and standardized approach to managing crypto assets within its financial ecosystem.
About OECD:
- Formed as the Organisation for European Economic Co-operation (OEEC) in 1948.
- Renamed the OECD in 1961 with the inclusion of the USA and Canada.
- Focuses on promoting economic stability and combating poverty through economic development and cooperation.
- India, although not an OECD member, has been engaged in a cooperation program with the organization since 1997.