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.
- 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.
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.