Opinion New currency, next steps

Globally, countries have opted for different approaches in dealing with the contentious issue of cryptocurrencies. While some have brought in stringent regulatory frameworks, others have veered towards outright bans. India’s approach has also been mixed. In 2018, the RBI prohibited Indian banks from dealing with or facilitating cryptocurrency transactions. In 2020, the Supreme Court struck this down. In the Union budget 2022-23, a 30 per cent tax was proposed on income from the transfer of digital assets, along with a 1 per cent TDS (tax deduction at source) on such transactions. Considering the borderless nature of cryptocurrencies, Finance Minister Nirmala Sitharaman has said that any legislation for regulation or banning can only be effective through global collaboration. An IMF and the Financial Stability Board (FSB) paper, last week, noted that “a comprehensive policy and regulatory response” is needed to tackle the risks that crypto-assets pose to financial stability. On Saturday, the G20 Leaders Declaration endorsed the recommendations of the FSB and also welcomed the paper’s roadmap “that will support a coordinated and comprehensive policy and regulatory framework.”

The decision to ban cryptocurrencies is not an “easy option”, as the IMF-FSB paper notes. It may be even difficult to enforce — a ban in one jurisdiction could simply lead to crypto activity moving to other more friendly jurisdictions. Moreover, such an approach may end up pushing cryptocurrency transactions outside a country’s area of scrutiny. This can increase financial integrity risks. In contrast, regulation and supervision of licenced or registered crypto-asset issuers and service providers could help plug the information gaps, making it easier to monitor cross-border activities. Several other steps need to be taken. For instance, the paper argues for the need to implement the Financial Action Task Force anti-money laundering and counter-terrorist financing standards that apply to cryptocurrencies and service providers.

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Finance ministers and central bank governors of the G20 countries will meet in October to discuss taking forward the roadmap outlined in the IMF-FSB paper. This is welcome progress. Considering the transnational nature of cryptocurrencies, global coordination is required.