Crypto Unity at G20: Majority Backs RBI’s Views

Overview

The G20 FMCBG witnessed two reports that highlighted the need for a robust regulatory framework for cryptocurrencies that can effectively address several macroeconomic risks. According to the discussions held during the G20 Finance Ministers and Central Bank Governors meeting held in Gandhinagar, most G20 members recognise the potential threat that cryptocurrencies pose to financial system stability.

The Reserve Bank of India’s Stance on Cryptocurrencies

Ever since the use of cryptocurrencies has increased globally, the Reserve Bank of India has been cautious about it, citing reasons such as consumer protection, terror financing, and money laundering. It has already attempted to regulate cryptocurrencies in the past when it banned regulated entities from cryptocurrency dealings in 2018. This made it effectively legal for banks to provide their services to crypto traders and exchanges.

In March 2020, the Supreme Court of India overturned the ban, ruling it unconstitutional. Since then, the RBI has been trying numerous ways to regulate cryptocurrencies in the country. It formed a special panel to look into the issue and make recommendations on how to regulate crypto. Several options have been considered, including the creation of a new regulatory framework, a regulation under existing laws, and a blanket ban on cryptocurrencies altogether.

With the recent developments, it seems that the RBI is not alone in its views about cryptocurrencies. In fact, a majority of G20 countries have supported its stance on crypto assets.

Also Read: Why Should You Invest in Cryptocurrency Right Now?

India’s Approach to Cryptocurrencies

India’s legislation towards cryptocurrencies has changed over the years. The RBI initially issued a cautionary statement addressing the potential risks associated with virtual currencies, including cryptocurrencies, back in 2013. The RBI issued a circular in 2017 that banned banks and other entities under its regulation from offering services to individuals and businesses that deal in cryptocurrencies.

After the ban was overturned by the RBI, the Indian government has contemplated implementing a detailed framework for crypto. Last year, the Ministry of Finance issued a report that proposed the establishment of a state-backed cryptocurrency known as the Digital Rupee. The report also indicated the need to create a Digital Current Regulatory Authority to regulate crypto usage in the country.

In a noteworthy development, Indian Finance Minister, Nirmala Sitharaman significantly changed the treatment of virtual assets such as cryptocurrencies. For the first time, government officials classified cryptos as virtual digital assets. It has proposed a 30% income tax on crypto assets, marking a remarkable stride towards providing clarity to crypto investors and traders in the country.

Also Read: Crypto Twitter Buzz: Xi Jinping NFT Delisted from OpenSea

G20 Members’ Changing Perspectives

Most G20 countries were initially enthusiastic about cryptocurrencies. However, they now acknowledge the macroeconomic risks and challenges associated with this new breed of digital assets. Several nations now support the view put forward by India’s central bank that cryptocurrencies can have a significant negative impact on the stability of the global financial system.

In recognition of the potential risks, G20 members are now contemplating coming up with a regulatory framework that sets a minimum threshold for cryptocurrencies. Beyond this, it hopes to give individual jurisdictions the power to impose even more stringent regulations if needed. This includes the possibility of implementing a blanket ban on them.

Related: How to Navigate a Crypto Crash in 2023?

International Efforts for Analysis and Synthesis

There are several cryptocurrency-related concerns that regulators around the world have, such as their potential exploitation for terror funding, money laundering, and drug trafficking. One such notable example is the fall of FTX, which used to be the second-largest cryptocurrency exchange with 1 million investors but collapsed in November 2022. All these apprehensions are prompting the need for comprehensive mitigation measures after careful risk evaluations.

Both the Financial Stability Board (FSB) and the International Monetary Fund (IMF) are spearheading efforts to analyse several crypto-related issues. These two entities are collaborating to create a synthesis paper to present their findings and recommendations to the G20.

The synthetic paper, which is expected to be released later this year, will focus on crypto regulations and financial stability. It aims to provide a comprehensive understanding of the challenges and potential solutions for regulating cryptocurrencies in the global financial landscape.

Cryptocurrency Regulations Around the World

The development and implementation of cryptocurrency regulations is an ongoing effort, with many countries already creating policies and legislation. Some regulations and limitations exist in some nations, while others are taking steps to regulate them as much as possible. For instance, the EU is developing laws that require crypto service providers to identify elicit crypto usage. The United States has also put crypto exchanges under regulation.

The United States introduced a new framework last year that opened the possibility of further regulation. The new directive has given power to the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC). The regulatory body that regulates crypto in the United States depends on how and where it is used. Additionally, the Chicago Mercantile Exchange and the Financial Industry Regulatory Authority are all involved in various aspects of regulation.

Conclusion

The discussions held during the G20 Finance Ministers and Central Bank Governors meeting underscore the critical need for a robust regulatory framework to address all the macroeconomic risks posed by cryptocurrencies. The dynamic nature of the crypto market demands ongoing collaboration and vigilance among the G20 members.

Frequently Asked Questions

What Were the Main Objectives of the G20 FMCBG Meeting in Gandhinagar?

The Main objectives of the G20 FMCBG meeting were financial collaboration and understanding between the G20 countries. This included discussions on the global economic outlook, the recovery from the pandemic, and the challenges and opportunities created by digitalisation, including cryptocurrencies.

What Are Some Cryptocurrency-Related Incidents That Have Raised Concern Among G20 Members?

One of the most notable incidents that have raised concerns among G20 members is the collapse of FTX in November 2022, which affected over 1 million investors. Other incidents include cyberattacks, frauds, scams, and illicit activities using crypto.

How Are the IMF and FSB Contributing to Crypto Regulations?

Both the IMG and FSB are conducting a joint analysis of the issues and challenges related to crypto regulations. As part of their efforts, they are preparing a synthesis paper to present their findings and recommendations to the G20.