In News
- Recently, the International Monetary Fund has laid out a nine-point action plan for countries to treat crypto assets.
More about the news
- Elements of Effective Policies for Crypto Assets:
- IMF – The global lender of last resort said its Executive Board had discussed a paper, “Elements of Effective Policies for Crypto Assets,” that provided “guidance to IMF member countries on key elements of an appropriate policy response to crypto assets.“
- The paper sets forth a framework of nine elements to help members develop a comprehensive, consistent, and coordinated policy response.
- The nine elements or policy actions are:
- Safeguard monetary sovereignty and stability by strengthening monetary policy frameworks and do not grant crypto assets official currency or legal tender status.
- Guard against excessive capital flow volatility and maintain effectiveness of capital flow management measures.
- Analyze and disclose fiscal risks and adopt unambiguous tax treatment of crypto assets.
- Establish legal certainty of crypto assets and address legal risks.
- Develop and enforce prudential, conduct, and oversight requirements to all crypto market actors.
- Establish a joint monitoring framework across different domestic agencies and authorities.
- Establish international collaborative arrangements to enhance supervision and enforcement of crypto asset regulations.
- Monitor the impact of crypto assets on the stability of the international monetary system.
- Strengthen global cooperation to develop digital infrastructures and alternative solutions for cross-border payments and finance.
- G20 Data Gaps Initiative:
- The IMF has welcomed in this context the new G20 Data Gaps Initiative.
- According to the IMF, consistent recording of crypto assets in macroeconomic statistics across economies, underpinned by a reliable data framework, will be important.
Significance
- Such efforts have become a priority for authorities, the IMF said, after the collapse of a number of crypto exchanges and assets over the last couple of years.
- The paper addresses questions raised by IMF member countries on benefits and risks of crypto assets and on how to structure appropriate policy responses.
- It operationalizes the principles outlined in the Bali Fintech Agenda (IMF and World Bank 2018) and includes macrofinancial considerations such as implications for monetary and fiscal policies.
More about Cryptocurrency
- About:
- It is a digital currency that can be used in place of conventional money.
- In cryptocurrencies, cryptography is used to secure and verify transactions. It is also used to control the supply of cryptocurrencies.
- It is supported by a decentralized peer-to-peer network called the blockchain.
- The first cryptocurrency: Bitcoin, was launched in 2009 by Satoshi Nakamoto.
- Features of Cryptocurrency:
- Cheaper to transfer:
- Some coins are used to transfer value (measured in a currency like dollars) cheaper and faster than using credit or conventional means.
- Meaning the cost to send someone crypto, which can be converted into regular currency, is cheaper than something like a check or wire transfer.
- No physical form:
- Cryptocurrency does not exist in physical form (like paper money) and is typically not issued by a central authority.
- However, it can be and many governments are working to create a crypto coin version of its respective fiat currency.
- Decentralised:
- Cryptocurrencies typically use decentralized control as opposed to a central bank digital currency.
- When created with decentralized control, each cryptocurrency works through what is called distributed ledger technology, which is typically a blockchain, that serves as a public financial transaction database.
- Cheaper to transfer:
- Challenges
- While the supposed potential benefits from crypto assets have yet to materialize, significant risks have emerged.
- Undermining the monetary policy & international monetary system :
- The widespread adoption of crypto assets could undermine the effectiveness of monetary policy, circumvent capital flow management measures, and exacerbate fiscal risks.
- Widespread adoption could also have significant implications for the international monetary system in the longer term.
- Security Risks:
- Cyberattacks on wallets, exchange mechanism (Cryptojacking).
- They are prone to issues like Hijacking, Routing Attacks, Distributed Denial of Service (DDoS) attacks.
- Shield to Crime:
- Used for illicit trading, criminal activities and organised crimes.
- Lack of Liquidity and Lower Acceptability:
- Outside the traditional banking systems.
- Price Volatility:
- Prone to price fluctuations and waste of computing power.
- Threat to the Indian rupee:
- If a large number of investors invest in digital coins rather than rupee-based savings like provident funds, the demand of the latter will fall.
- Consumer protection and enforcement:
- Due to the decentralised nature of digital instruments of bitcoins, any regulatory regime over crypto assets is challenging.
- There is a great likelihood of execution of unauthorised trades not in consonance with any regulatory framework.
Indian Government’s stand on Cryptocurrency
- The Reserve Bank of India (RBI), has long recommended a complete ban on all crypto, warning that it has the potential to destabilize the country’s monetary and fiscal stability.
- Despite having no regulatory framework for crypto, the Indian government had introduced a new tax regime in 2022, taxing crypto income at 30% and a 1% tax deducted at source (TDS) on crypto transactions.
Way ahead
- The right regulations could be introduced to aid the growth of the industry.
- The other option would be to follow the nine-point action plan banning and wait for more clarity.
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G20 Data Gaps Initiative
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Source: TH
