Context

Crypto regulation was a key agenda of the G20 summit. While regulations and a framework are yet to be finalised, consensus emerged that a blanket ban was not feasible. This was based on the report formulated by the IMF and the Financial Stability Board endorsed by G20 nations. 

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.
• The IMF-FSB Synthesis paper had made a strong case for regulating crypto assets but had noted that a blanket ban may not be an effective tool.
• 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.