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G20’S Crypto Regulatory Framework

Why is it in the news?

Recently, G-20 countries have agreed to explore a coordinated regulatory framework for crypto assets.

Shift away from Outright Ban

  • India was previously considering an outright ban on cryptocurrencies due to concerns about their use and advertisements.
  • Realization that a global consensus is needed for effective regulation has led to a shift away from an outright ban.

G20 Endorsement

  • The G-20 leaders’ declaration has endorsed recommendations by the Financial Stability Board (FSB) to regulate and supervise crypto assets.
  • The FSB roadmap includes coordinated regulatory frameworks addressing risks, especially in emerging markets, and concerns related to money laundering and terror financing.
  • G-20 Finance Ministers and Central Bank Governors will discuss the roadmap’s implementation at a meeting in Marrakesh next month.

Consistency in Global Regulations

  • The focus is on well-managing risks, and timely and consistent implementation of FSB recommendations globally.
  • Preventing regulatory arbitrage, where trade shifts to jurisdictions with more relaxed regulations, is a key concern.
  • India intends to have a conversation with stakeholders to align its system and policies with the FSB recommendations.
  • The IMF is also contributing to proposals for a comprehensive policy framework for digital money and crypto assets.

Cryptocurrency

Features of Cryptocurrency

  • Anonymous: Transactions can be conducted without revealing identities, credit scores, or the involvement of banks.
  • Highly secure: Transaction records are stored in a transparent, tamper-resistant digital ledger accessible to anyone.
  • Difficult to steal or seize, and can be used globally.
  • Cost-effective transfers: Some cryptocurrencies enable cheaper and faster value transfers compared to traditional methods.
  • Not limited to illegal use; price volatility has reduced its attractiveness in the black market.
  • No physical form: Cryptocurrency exists purely in digital form and is not issued by a central authority.
  • Governments may work on creating their own cryptocurrency versions.
  • Decentralized control: Cryptocurrencies typically operate without central authority, using distributed ledger technology like blockchain.
  • Blockchain technology: A public ledger of encrypted data blocks, forming a transparent and immutable record.
  • Digital assets are distributed, not copied or transferred, ensuring an immutable record.
  • Decentralization allows real-time access and transparency to the public.
  • Transparent ledger preserves document integrity, building trust in the asset.
  • Blockchain’s security measures and public ledger make it applicable to various sectors.

India and Cryptocurrency Timeline

  • 2009: Bitcoin, the first cryptocurrency, launched by Satoshi Nakamoto.
  • 2018: RBI (Reserve Bank of India) banned banks and regulated entities from supporting crypto transactions.
  • 2019: An inter-ministerial committee recommended banning all private cryptocurrencies.
  • 2020: Supreme Court of India struck down the ban on cryptocurrency trading as unconstitutional.
  • 2021: Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 introduced.
  • Plan to ban private digital currencies in favor of an RBI-backed currency.
  • Proposed a 3-6 month exit period before banning crypto trading, mining, and issuance.
  • Cryptocurrencies, while unregulated, are not illegal in India.

RBI and Digital Currency:

  • RBI exploring Distributed Ledger Technology (DLT) for a Central Bank Digital Currency (CBDC).
  • DLT records details in multiple places simultaneously, with blockchain being one type.
  • CBDC would be legal tender and exchangeable at par with cash.

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