Globally, Countries Take Different Approaches to Cryptocurrency Regulation

In dealing with the contentious issue of cryptocurrencies, countries around the world have adopted various approaches. Some have implemented strict regulatory frameworks, while others have chosen to ban cryptocurrencies altogether. India’s approach has been mixed, with the Reserve Bank of India (RBI) initially prohibiting Indian banks from dealing with cryptocurrency transactions, a decision that was later struck down by the Supreme Court in 2020. In the recent Union budget for 2022-23, a 30% tax on income from the transfer of digital assets and a 1% tax deduction at source (TDS) on such transactions were proposed. Finance Minister Nirmala Sitharaman has emphasized the need for global collaboration in enacting effective legislation for regulation or banning of cryptocurrencies, given their borderless nature.

Global Collaboration for Effective Regulation

Finance ministers and central bank governors of the G20 countries are set to meet in October to discuss the roadmap outlined in a paper by the International Monetary Fund (IMF) and the Financial Stability Board (FSB). The paper highlights the need for a comprehensive policy and regulatory response to address the risks posed by crypto-assets to financial stability. The G20 Leaders Declaration has endorsed the recommendations of the FSB and welcomed the paper’s roadmap, which aims to establish a coordinated and comprehensive policy and regulatory framework.

The Challenges of Banning Cryptocurrencies

While banning cryptocurrencies may seem like an easy option, the IMF-FSB paper notes that it is not without its challenges. Enforcing a ban in one jurisdiction could simply lead to crypto activity moving to more crypto-friendly jurisdictions. Additionally, such an approach may push cryptocurrency transactions outside the scrutiny of a country, increasing financial integrity risks. Instead, the paper suggests that regulation and supervision of licensed or registered crypto-asset issuers and service providers can help fill information gaps and facilitate monitoring of cross-border activities. The implementation of anti-money laundering and counter-terrorist financing standards that apply to cryptocurrencies and service providers, as outlined by the Financial Action Task Force, is also recommended.

The Need for Global Coordination

Given the transnational nature of cryptocurrencies, global coordination is crucial. The upcoming meeting of G20 finance ministers and central bank governors presents an opportunity to discuss and advance the roadmap proposed by the IMF-FSB paper. Cooperation among countries is essential to effectively regulate cryptocurrencies and address the risks they pose to financial stability.