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Crypto Assets

September 11, 2023

GS Paper III Indian Economy

Context:

The IMF and FSB, upon request from the Indian G20 Presidency, advise against banning crypto-assets.

Recommendations:

Suggests introducing a licensing regime for crypto-asset platforms.

Cryptocurrency:

Cryptocurrency is a digital form of currency secured by Blockchain Technology.
It operates in a decentralized manner, free from government or institutional control.
Notable examples include Bitcoin, Ethereum, and Litecoin.

Advocates applying anti-money laundering and counter-terrorist financing standards to crypto-assets.
Marks the beginning of a global conversation on crypto-asset regulation.

Implications on the Financial Ecosystem:

Macroeconomic stability: Crypto adoption can affect monetary and fiscal policy effectiveness.
Regulatory challenges: Crypto-assets pose legal, regulatory, and enforcement challenges in different jurisdictions.
Legal risks: Recognition of crypto-assets as legal tender can raise legal issues.

India’s earlier stance:

In 2018, India proposed banning virtual currencies.
RBI restrained banks from dealing in cryptocurrencies, later reversed by the SC in 2020.

Financial integrity risks: Pseudonymity and weak AML/CFT measures make crypto-assets attractive to criminals.Market integrity: Non-compliance and lack of regulation can harm market participants.
Environmental risks: High energy consumption associated with crypto mining.

Way Forward:

Cryptocurrency Regulation in India:

No central authority regulation for crypto as a payment medium.
30% tax deduction on virtual currency transfers with 1% TDS.

Protect monetary sovereignty through effective policies.
Counter capital flow volatility.
Address fiscal risks and establish clear tax treatment.
Implement FATF and IOSCO standards for financial and market integrity regulation.

News Source: Livemint

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