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.