GS Paper 3
Syllabus: Indian Economy and related issues
Context: Digital technology is playing an important role in achieving India’s G20 Presidency goal (“Vasudhaiva Kutumbakam” or “One Earth, One Family, One Future”).
- The Indian Presidency’s priority is to make the digital financial system more efficient, secure, and stable.
- For this to happen, financial sector regulatory reforms are essential.
- However, there is no comprehensive global policy framework for crypto assets, despite the rapid evolution of the crypto universe.
- The global standard-setting bodies (such as the FATF, Financial Stability Board (FSB), Basel Committee on Banking Supervision (BCBS), etc) have been coordinating the regulatory agenda.
Probable benefits of crypto assets:
- Cheaper and faster cross-border payments
- More integrated financial markets
- Increased financial inclusion
- Greater interconnectedness between crypto assets and the traditional financial sector
- Complexity and volatility around crypto assets
- Critical digital infrastructure/platforms
- Global information gaps pertaining to the crypto asset
Status of Crypto regulation in India:
- RBI has announced Central Bank Digital Currency (CBDC), a sort of official cryptocurrency, for retail as well as wholesale users in 2022 on a pilot basis.
How can the Indian G20 Presidency shape Global Policy Dialogue on Crypto Assets?
- Broaden the discussion on crypto assets: Beyond financial integrity concerns and capture the macroeconomic implications and widespread crypto adoption in the economy.
- Inform policymakers: On the broader macroeconomic and financial stability implications of crypto assets.
- Highlight the consequences of crypto adoption: On the internal and external stability of a country’s economy as well as on the structure of its financial system.
Way Forward: IMF’s 9 points crypto asset action plan –
- Safeguard monetary sovereignty and stability by strengthening monetary policy frameworks and do not grant crypto assets legal tender status.
- Guard against excessive capital flow volatility and maintain the effectiveness of capital flow management measures.
- Analyse and disclose fiscal risks and adopt unambiguous tax treatment of crypto assets.
- Establish legal certainty of crypto assets and address legal risks.
- Develop oversight requirements for all crypto market actors.
- Establish a joint monitoring framework across different domestic agencies and authorities.
- Establish international collaborative arrangements.
- Monitor the impact of crypto assets on the stability of the international monetary system.
- Strengthen global cooperation to develop digital infrastructures.