CRYPTO
ASSETS – ECONOMY
News:
Crypto issue requires
immediate attention, says FM Sitharaman
What's
in the news?
●
Union Finance Minister Nirmala Sitharaman
has said that the issues related to crypto assets require immediate attention
and the response of the G20 has to ensure that they do not lose any potential
benefits while protecting economies from harm.
Key
takeaways:
●
India
currently holds the rotating annual presidency of G20 countries.
●
Ms. Sitharaman was part of a brainstorming
session on "Macro financial
Implications of Crypto Assets" with G20 finance ministers and central
bank governors at the IMF's headquarters here on April 14.
Crypto
Assets and G-20:
●
Issues related to crypto have emerged as a
major point of discussion among G20 countries and there is unanimity among
member nations about the urgency to regulate this sector.
●
The Minister noted that there was consensus among G20 members to have a
globally coordinated policy response on crypto assets that takes into
consideration the full range of risks, including those specific to emerging
markets and developing economies.
●
Earlier this week, Ms. Sitharaman had said
that India's G20 Presidency aims to develop a common framework for all countries to deal with risks associated with
cryptocurrencies in the wake of the recent shocks witnessed in the crypto
market.
Crypto
Assets:
●
Crypto assets are entirely digital assets that are verified through the use of public
ledgers on the internet.
●
To originate, verify, and secure
transactions, they use cryptography, peer-to-peer networks, and distributed
ledger technology (DLT) such as blockchain.
●
It includes cryptocurrencies as well as
non-currency tokens like utility tokens
and non-fungible tokens.
●
Crypto assets are largely decentralised and operate without the
intervention of a central bank, government, or central authority.
●
They can be used as a medium of exchange, a means of storing value, or for other
commercial purposes.
Factors
for rise in Crypto Assets:
1. Technological innovation is ushering in a new era that makes
payments and other financial services cheaper, faster, more accessible. It
allows these services to flow across borders swiftly.
2. Bank deposits can be transformed to stable coins that allow instant
access to a vast array of financial products and allow instant currency
conversion.
3. Decentralised finance could become a platform for more innovative,
inclusive, and transparent financial services.
Issues
related to Crypto Assets:
1.
Different regulators may be required:
●
SEBI has discussed the potential for
different regulators to be required to deal with different areas of the crypto
asset market.
2.
Cryptocurrency classification:
●
It has also sought clarification on
whether cryptocurrencies can be legally classified as securities, which they
are not today.
3.
Causes instability:
●
The rapid growth and increasing adoption
of crypto assets also pose financial stability challenges as these are
extremely volatile causing instability in markets and the economy as a whole.
4.
Operational and financial integrity risks from crypto asset
providers.
5.
Investor protection risks for crypto-assets.
6.
Inadequate reserves and disclosure for some stable coins.
7.
Illegal use of crypto assets such as terror
financing, money laundering, etc.
The global standard-setting bodies, such as the Financial Action Task
Force (FATF), Financial Stability Board (FSB), Committee on Payments and Market
Infrastructures (CPMI), International Organization of Securities Commissions
(IOSCO) and Basel Committee on Banking Supervision (BCBS), have been
coordinating the regulatory agenda while working within their respective
institutional mandates.
Status
of Crypto Regulation in India:
●
In the Union Budget last year, even though
the government brought in a tax for cryptocurrencies, it did not proceed with
framing regulations.
●
From April 2022, India introduced a 30 percent income tax on gains made from
cryptocurrencies.
●
In July 2022, rules regarding 1 percent tax deducted at source on
cryptocurrency came into effect.
●
Earlier, the RBI had proposed a ban, that
was set aside by the Supreme Court.
●
In July 2022, flagging the RBI’s concerns,
the Finance Minister told Parliament that international collaboration would be
needed for any effective regulation or ban on cryptocurrency.
Recent
Notification of PMLA, 2002:
●
The Ministry of Finance has issued a
circular bringing transactions involving
crypto assets under the Prevention of Money Laundering Act.
●
It laid out the nature of transactions to
be covered under PMLA. These are as follows.
a.
Exchange between virtual digital assets
and fiat currencies.
b.
Exchange between one or more forms of
virtual digital assets.
c.
Transfer of virtual digital assets.
d.
Safekeeping or administration of virtual
digital assets or instruments enabling control over virtual digital assets.
e.
Participation in and provision of
financial services related to an issuer’s offer.
f.
Sale of a virtual digital asset.
●
The circular also requires Indian crypto
exchanges to report any suspicious activity to the Financial Intelligence Unit-India (FIU-IND).
●
It also mandates that crypto exchanges and
intermediaries dealing with virtual
digital assets (VDAs) must have proper KYC documentation for all customers
they onboard.
Despite the rapid
evolution of the crypto universe, there is no
comprehensive global policy framework for crypto assets. Given the concerns
over greater interconnectedness between crypto assets and the traditional
financial sector as well as the complexity and volatility around crypto assets,
policymakers are calling for tighter regulation.