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India recently assumed the Presidency of the G20, and this is a source of immense pride for all Indians. As the leader of the G20, India has the opportunity to showcase its leadership to the world. The G20 focuses on issues related to the global economy, including international financial stability, climate change mitigation, and sustainable development.
The G20 is an institution that operates through multiple tracks, the two most important being the Sherpa Track and the Finance Track. The Sherpa Track includes 13 Working Groups and 2 Initiatives under India’s Presidency, and is responsible for discussing priorities and providing recommendations. The Finance Track is particularly relevant to the virtual asset/crypto ecosystem, as it includes an assessment of the risks posed by crypto-assets and policy approaches. This ties into India’s intent and vision to take a leading role in global regulation of crypto assets/virtual digital assets (VDAs). Building on the recommendations of the Financial Stability Board (FSB), the Organisation for Economic Co-operation and Development (OECD) and the Financial Action Task Force (FATF) during Indonesia’s Presidency, the world now looks to India to drive the recommendations forward and strive for global consensus on crypto regulation.
Recently, the Government brought cryptocurrencies under the ambit of the Prevention of Money Laundering Act (PMLA), aligning India with the global trend of requiring digital-asset platforms to adhere to anti-money laundering standards similar to those followed by other regulated entities such as banks or stock brokers.
The Indian G20 Presidency has proposed a joint technical paper by the IMF and FSB to support the development of global, coordinated policymaking on crypto assets. Prime Minister Narendra Modi has emphasised the importance of collaboration between democratic nations to ensure that cryptocurrency does not fall into the wrong hands. He has shared his views on this topic on various occasions, such as the Sydney Dialogue and the WEF summit. Additionally, countries, companies, and international organisations are beginning to take action to regulate the space, both legally and technologically. However, there is still a lack of global agreement on how to regulate cryptocurrencies, as different nations are taking their own approaches.
Most countries have instituted licensing and registration processes for Virtual Asset Service Providers (VASPs) and institutions involved in cryptocurrency transactions. This is the first step of compliance with the OECD and FATF recommendations. Unfortunately, India has not yet established any licensing or registration schemes in this regard.
Most countries have taxed virtual currency derivatives (VDAs), pointing to the fact that taxation is the first step towards regulation or recognition. It is argued that taxation is undertaken by many of these jurisdictions to better study the cryptocurrency ecosystem and understand the scale of it in their domestic economies. Hence, India is not a lone example of taxing without regulation, but rather, taxation could be looked at as the initial step towards understanding and consequently regulating the ecosystem with a better taxation format that makes it viable yet traceable.
Most countries around the world are conducting extensive research or actively developing Central Bank Digital Currencies (CBDCs). Although there has been debate over the possibility of both Virtual Domestic Assets (VDAs) and CBDCs existing side-by-side to address different issues, the G20 framework is now focusing greater attention on CBDC research and test implementations.
The European Parliament recently approved the European Union’s crypto-assets framework known as MiCA (Markets in Crypto-Assets Regulation), which offers a regulatory licensing system for crypto-asset services and stablecoin issuers throughout the 27 EU member states.
The MiCA framework provides a unified approach to the regulation of crypto-assets, incorporating comprehensive consumer protection rules and anti-money laundering regulations to ensure the safety of EU citizens.
The approval of the MiCA framework is a major milestone in the development of the European digital economy, as it provides a secure, transparent, and efficient framework for the issuance and circulation of digital assets throughout the European Union.
MiCA appears to be purposely avoiding regulating decentralized finance (DeFi) and non-fungible tokens (NFTs). It is important to note that the regulations on stablecoin issuers will give consumers assurance that their tokens are properly backed and redeemable.
With the global players largely regulating and promoting their own mechanisms around crypto, it is equally important for India and other emerging economies to collaborate and explore an equivalent that will address security, traceability, and forced dollarization concerns. According to various studies, the crypto-tech market in India could potentially be worth $2.3 billion globally by 2026 and create 800,000 jobs, providing an economic value-add of $184 billion by 2030 through investments and cost-savings.
Minister of State for Finance, Pankaj Chaudhary, recently informed the Parliament that India is actively working alongside other G20 nations to develop a globally coordinated policy on crypto assets. Leveraging its G20 Presidency, the country is capitalizing on the opportunity to prioritize certain issues, including crypto assets, for international collaboration.
The unique characteristics of crypto assets mean that they are not confined to any one country and thus require cooperation between nations to avoid regulatory discrepancies. Consequently, India’s effort to build a comprehensive policy on crypto assets in partnership with other G20 nations is a positive step towards establishing a robust, unified regulation.
Finance Minister Nirmala Sitharaman held important discussions during the IMF-World Bank Spring Meetings in April in Washington. Moreover, in July, the Financial Stability Board (FSB) will present their paper on regulating crypto assets. This paper will be debated during the next meeting of finance ministers and central bank governors.
While it may seem like a step in the right direction, regulating the crypto ecosystem may take some time to achieve a global consensus. Moreover, there have been some intriguing developments in some G20 countries with regards to crypto regulation. India, in particular, is at the forefront of this effort and has been pushing for stronger regulations for crypto assets, as well as collaborations between G20 countries to create a unified global framework.
There is every hope that India’s dynamic leadership will drive the world towards a more robust and dynamic global regulation for this sector. India has the potential to become a key player in the Web3 ecosystem, shaping major world decisions and working with its startups to build essential components in the Web3 space, such as robust stable coins and blockchain ecosystems. These will be adopted by the emerging world, and also complement Central Bank Digital Currency (CBDC) efforts.
