Op-ed: India’s dalliance with crypto ends in a win-win situation

The following is a guest post from Rajagopal Menon, Vice President at WazirX.

India’s crypto ecosystem finally has something to smile about following the conclusion of the G20 summit. The G20, representing the world’s most influential economies, fully endorsed the recommendations from the IMF and FSB as a Synthesis paper.

These guidelines aim to chart a clear path for the policy and regulatory framework for crypto assets and clarify key issues that many governments are concerned about. The paper not just advises against a blanket ban on crypto assets but also emphasizes several key principles to guide regulatory approaches in this rapidly evolving landscape.

Crypto’s influence on traditional monetary systems

A critical aspect addressed by the FSB Synthesis paper is the excessive capital flow volatility caused by crypto assets. To mitigate this risk, the paper recommends clarifying the legal status of crypto assets and ensuring that capital flow management laws comprehensively cover them.

In addition to that, monitoring the impact of crypto assets on the International Monetary System has been addressed. The paper stresses the need for unambiguous tax treatment of crypto assets to prevent evasion and ensure fair contributions to national revenues. The Synthesis Paper also provides detailed recommendations for crypto assets and Global Stablecoins (GSCs) to mitigate potential risks and foster innovation simultaneously. This addresses some of central banks’ and regulators’ concerns about crypto in many countries, including India.

Crypto’s status as a payment instrument

The Synthesis Paper distinguishes between crypto assets and traditional fiat currencies, indicating that this will prevent overlap or sovereignty issues in monetary systems. However, in 2021-22, many multinational organizations adopted crypto as payment. Many of them still continue to accept it for goods and services.

While integrating crypto in traditional payment systems will be tedious, if the ecosystem becomes less volatile, it can be considered in niche B2C/B2B businesses before becoming mainstream. Before that, the utility of the tokens to be used and their underlying assets should be clearly established, and enough liquidity should be ensured so that no stakeholders are at a disadvantage. It is important to note that crypto’s core technology will influence the payment systems in the coming years, globally, directly or indirectly.

Where India individually stands on its stance on crypto

As India’s watershed moment was marked by its collaborative approach with other nations, the country also hinted at formulating its domestic regulations on the same lines.

During the G20 leaders’ summit, the Secretary of India’s Department of Economic Affairs mentioned that India’s stance on crypto would be well-established in the coming months. He highlighted that India would base its decisions on the risk assessment framework developed by G20. India’s G20 presidency prioritized global crypto regulation and welcomed the IMF-FSB Synthesis paper’s recommendations for adopting virtual digital assets. India is actively working on its domestic regulations, which already include anti-money laundering rules and crypto taxation.

Private players look forward to a higher frequency of dialogues between the industry, consumers, and regulators for a holistic approach toward bringing together a regulatory framework in the Goldilocks zone – effective, pragmatic, and thriving. The industry anticipates an improved atmosphere of innovation, support for local talent, and investments in Indian Web3 projects without any local regulatory hindrances.

Way forward for implementing regulations globally

The FSB is expected to actively promote the implementation of the recommendations from its joint Synthesis paper in collaboration with the standard-setting bodies or SSBs. By 2025, the global ecosystem may look forward to a comprehensive review of the status of these recommendations at the jurisdictional level, following which the need for additional guidance or recommendations will be assessed within international standards.

This gives the industry hope for a high level of interaction with SSBs to jointly monitor the implications of how their standards apply to crypto-assets, making necessary revisions to existing recommendations and strategies. Additionally, the pros and cons related to asset-backed stablecoins and their potential impact on financial market infrastructures will be closely monitored, where private stablecoin issuers may look forward to assuming an active role.

Most importantly, the issue of fiat on-ramp is set to improve considerably as there will be measures to introduce a global prudential standard for bank exposures to crypto-assets by 2025. The stakeholders, such as domestic regulators, would expect sufficient assistance in capacity building to ensure fair implementation of all policy recommendations.

Conclusion

Transitioning from the global stage to a more regional focus, India’s evolving stance on crypto assets offers a fascinating case study. The nation’s journey with crypto, marked by regulatory hurdles and policy shifts, has been a roller-coaster. The global leaders will continue to engage in fruitful dialogues about the next course of action in the coming months as the policy implementations unfold under the supervision of the IMF.

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