Most G20 Members Support RBI’s Views on Crypto | Latest India News

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New Delhi A majority of G20 members now agree with India’s central bank’s view that cryptocurrencies could pose huge risks to the stability of the financial system, people aware of the development said, adding that these countries could work to institutionalize an internationally accepted regulatory framework for crypto-assets while allowing individual jurisdictions to impose stricter regulations beyond that minimum threshold, or even a complete ban.

Finance Minister Nirmala Sitharaman and Reserve Bank of India Governor Shaktikanta Das at the end of the G20 Finance Ministers, Central Bank Governors and Finance and Central Bank MPs meetings in Gandhinagar on July 18. (AFP)

The initial enthusiasm shown by some countries towards cryptocurrencies has now waned as most of them have become aware of the macroeconomic risks and other challenges associated with them, said at least three people with direct knowledge of the matter requesting anonymity, sharing information and details of discussions at the third meeting of G20 Finance Ministers and Central Bank Governors (FMBCG) held last week in Gandhinagar.

Many countries are also concerned about the recent collapse of crypto exchanges and the risks of cryptos being used for drug trafficking, terrorist financing and money laundering, one said. In November 2022, FTX, the world’s second largest cryptocurrency exchange, collapsed, affecting over a million investors.

Cryptocurrencies pose financial and macroeconomic risks that will be appropriately assessed by experts along with their recommendations to mitigate them before the G20 finally considers the issue, a second person said. Crypto-related issues are being analyzed by the International Monetary Fund (IMF) and the Financial Stability Board (FSB) who will submit a position paper on this issue later this year, he added. The summary approach will cover two major aspects of crypto regulation and financial stability.

There is a marked change in the thinking of several countries towards cryptocurrencies, the first person said. Now most of them agree with RBI [Reserve Bank of India] concerns about financial and other risks associated with cryptos. The third meeting of the G20 FMCBG discussed this issue in detail, he said.

The issue was mentioned in the outcome document and Chair’s summary of the third G20 FMCBG meeting on July 18: We look forward to receiving the IMF-FSB position paper, including a roadmap, ahead of the Leaders’ Summit in September 2023, to support a coordinated and comprehensive policy and regulatory framework that takes into account all risks and risks specific to emerging markets and developing economies (EMDEs) and the ongoing global implementation of FATF standards to combat the risks of money laundering and terrorist financing.

According to the people mentioned above, two recent reports on cryptocurrencies presented to the G20 FMCBG at its July meeting, one by the FSB and the other by the Bank for International Settlements (BIS), highlighted the need to develop a robust regulatory mechanism that would also address macroeconomic risks.

At the meeting, members endorsed the FSB’s high-level recommendations for the regulation, supervision and oversight of crypto-asset activities, the first person said. He did not address the risks associated with crypto-assets, he said. The recommendations do not comprehensively cover all specific risk categories related to crypto-asset activities, such as: AML/CFT [anti money laundering/combating the financial terrorism]; data confidentiality; cyber security; consumer and investor protection; market integrity; competition policy; Taxation; Monetary Policy; monetary sovereignty and other macroeconomic concerns, the FSB said.

The G20 FMCBG also welcomed the BIS report on The Crypto Ecosystem: Key Elements and Risks which reviews the key elements of the crypto ecosystem, assesses its structural flaws and highlights the risks it poses. The report concludes that crypto has so far failed to harness innovation for the benefit of society, and that inherent structural flaws in crypto make it unfit to play an important role in the monetary system.

Crypto remains largely self-referential and does not fund real economic activity. It suffers from inherent shortcomings related to stability and efficiency, as well as accountability and integrity. These structural flaws result from the underlying economics of incentives rather than technological limitations, the BIS report added.

While the Reserve Bank of India (RBI) has previously expressed concerns over the negative effect of cryptocurrencies on the Indian economy, the Union government believes that any unilateral bans or regulations will be ineffective due to the borderless nature of cryptocurrencies, and that international collaboration is needed to prevent regulatory arbitrage.

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