Global approach to regulate cryptocurrencies

Context

The global push for a clear policy on crypto assets has gained momentum under the Indian presidency, and a global consensus is emerging on the same.

Background

Recently, a paper prepared by the International Monetary Fund (IMF) and the Financial Stability Board (FSB), at the request of the Indian G20 Presidency, has suggested that an outright ban on cryptocurrencies.
Blanket bans that make all crypto-asset activities (e.g., trading and mining) illegal can be costly and technically demanding to enforce.
They also tend to increase the incentives for circumvention due to the inherent borderless nature of crypto- assets, resulting in potentially heightened financial integrity risks, and can also create inefficiencies.

The consensus at New Delhi:

Under the Finance Track of India’s G-20 presidency, a co-ordinated global approach was discussed for regulating cryptocurrencies and strengthening multilateral development banks’ (MDBs) lending capacity.
The New Delhi Declaration adopted by the G-20 leaders noted that they “continue to closely monitor the risks of the fast-paced developments in the crypto-asset ecosystem”.
It emphasized to endorse the Financial Stability Board’s (FSB’s) recommendations for the regulation, supervision and oversight of crypto-assets activities and markets and of global stablecoin arrangements.
This will help in use of digital public infrastructure like the India Stack to expand financial inclusion around the world.
However, it does not outright impose any ban on crypto currencies.

Need for regulation:

To address risks to financial integrity and mitigate criminal and terrorist misuse of the crypto-assets sector, jurisdictions should implement the Financial Action Task Force (FATF) anti-money laundering and counter-terrorist financing (AML/CFT) standards that apply to virtual assets (VAs) and virtual asset service providers (VASPs).

About Cryptocurrencies:

Cryptocurrencies are digital or virtual currencies that use cryptography for security.
They exist solely in electronic form and have no physical counterpart like paper money or coins.
Most cryptocurrencies operate on decentralized networks, typically based on blockchain technology.
- This means they are not controlled by a single central authority, such as a government or central bank.
- Instead, they rely on a distributed ledger maintained by a network of nodes (computers).

Regulation of cryptocurrency

Unlike the U.S. Dollar or the Euro, there is no central authority that manages and maintains the value of a cryptocurrency.
Instead, these tasks are broadly distributed among a cryptocurrency’s users via the internet.

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