Centre was looking to introduce Cryptocurrency and Regulation of Official Digital Currency Bill, 2021
The G20 Summit this weekend will discuss the template and various building blocks for coordinated action on dealing with crypto assets, potentially paving the way for a global regulatory framework.
A synthesis paper prepared by the International Monetary Fund (IMF) and Financial Stability Board (FSB) at the behest of the G20 finance ministers and central bank governors on overall crypto asset regulation will be taken up by the leaders.
Prime Minister Narendra Modi had at the recent B20 Summit made a strong pitch for a global regulatory framework for crypto assets that would address the concerns of all stakeholders. Usage of crypto assets poses great challenges worldwide. There is an urgent need for crypto regulation to prevent its unethical use and at the same time to keep control over sovereign currencies.
The Prime Minister's remarks suggest India's shift towards regulation rather than absolute ban. This change in stance is keeping up with the practical objective to accommodate cryptocurrencies within a regulatory framework while curbing unethical practices.
In the Budget for financial year 2023, the Modi government had introduced a 30 per cent tax on gains made from virtual digital assets while clarifying that this wasn't a legal validity on cryptocurrencies.
The government was looking to introduce the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, in the Lok Sabha last year, but the move was shelved following the central bank's reservations.
The RBI (Reserve Bank of India) has been advocating for a complete ban on cryptocurrencies in India, though it has also launched the Central Bank Digital Currency (CBDC). Experts say that the CBDC may not fit the traditional definition of a cryptocurrency due to its centralised nature. Real cryptocurrencies are characterised by anonymity, decentralisation, and an absence of asset backing, features that CBDCs may not own.
The IMF-FSB synthesis paper has a roadmap to support a coordinated and comprehensive policy and regulatory framework. Risks posed to emerging markets and developing economies will be considered. It will also address the ongoing global implementation of Financial Action Task Force (FATF) standards to combat money laundering and terrorism financing risks.
Cryptocurrencies are digital or virtual tokens that use cryptography to secure their transactions and control the creation of new units. These are often bought with traditional currency like US dollars, euros or rupees. Bitcoin is the oldest and still the most relevant cryptocurrency in the world.
Cryptocurrency fraud and scams have become quite common as the popularity of cryptocurrencies grows. Crypto markets and coin prices are extremely volatile in nature. There is no way to ascertain how cryptocurrencies are expected to behave in the future.
"Cryptocurrency as we all know, is a digital currency or a virtual accounting system. Unlike any national currency, it is not backed by any asset, tangible or intangible. No government or any bank upholds it. Any such transaction between parties done without the intermediation of banks or governments, stands to be volatile and unsafe. The developments in the field of international regulation are yet to catch up with the progress made by private players or operators who are the mastermind behind such illegal transactions," says Vandana Jain, a financial consultant.
As per an IMF report, Japan and Switzerland have amended or introduced new legislation covering crypto assets and their service providers, while others (including the European Union, the United Arab Emirates, the United Kingdom, and the United States) are at the drafting stage. But national authorities have, on the whole, taken very different approaches to regulatory policy for crypto assets.
Globally, however, there are no uniform regulatory bodies to monitor crypto. Hence, the framing of the global regulatory framework for crypto assets under India's G20 presidency is a huge milestone.
Once the widely circulated cryptocurrency is incorporated into the regulatory system, then terrorist organisations and other unlawful groups may find that the digital world is not open. Last year in October, India hosted the 3rd Ministerial Conference on Countering Financing of Terrorism themed 'No Money for Terror' in Delhi. Experts and law enforcing agencies from 87 countries and 26 multilateral organisations opined that low-cost terror attacks are easy to mount and showed how jihadist groups could transfer money easily without using the international banking system.
The purpose of the conference was to convey India's determination in its fight against terrorism. Canada highlighted the massive increase - to the extent of 2,000 per cent in the past few years in the use of virtual assets for terror.
Terror financing in itself and as an instigator to crimes like money laundering, challenges national, regional and global security and threatens a nation's financial integrity. The counter-terror financing authorities in India continue to monitor organised digitised channels namely credit/debit cards and money value transfer services (MTSS), cash and hawala channels have sustained and are still primarily used by terror entities.
Due to rapid digitisation in the country, the risk of misuse of fintech services is real. Gauging the growth of virtual asset terror elsewhere, cryptos are very much part of the problem in India.
Finance Minister Nirmala Sitharaman had earlier said that the G20 economies were exploring whether the group could collectively regulate cryptocurrencies. India has always maintained that given the sophisticated technologies involved with these crypto virtual assets, countries must come together and discuss if there can be some standard operating procedure to be followed by everyone to make a regulatory framework that can be effective.
It's therefore a critical imperative that countries come together to build a common digital infrastructure to monitor such transactions and weed out the nefarious ones to safeguard the interests of their citizens from the vagaries of the dark web. India in its G20 presidency year has made it happen.