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Global approach to regulate cryptocurrencies

  • Published
    11th Sep, 2023
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.

Positives

Negatives

  • Bypassing fees and having privacy
  • Good investment opportunity
  • Less chance of hyperinflation

 

 

  • Extreme volatile
  • Uncertainty
  • Security issue
  • Taxable profits
  • Less mobility of money
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