Govt looks for resolution on Crypto rule at G20

Cryptocurrencies have been a hot topic in the past few years, with their prices fluctuating wildly and their use cases expanding. Now, it looks like the government is getting involved, as they are looking for a resolution on crypto rules at the G20 summit in 2022. 

This is a significant development, as it could lead to more regulation on cryptocurrencies.

Amid the fall in digital currencies, the government is trying to press for a decision to regulate volatile instruments as options for regulation are considered during India’s G20 presidency, according to a senior Indian official.

Cryptoassets are held and traded electronically on decentralised platforms, meaning no central authority or middleman is involved in their management. This makes them very different from traditional “fiat” currencies, which governments centrally control. Because crypto assets are not subject to government control, they have been largely unregulated.

This lack of regulation has made some people nervous about investing in crypto assets. However, others see them as a way to free themselves from government control and censorship. 

One option is to regulate the instrument, but another option is to ban it completely, as suggested by the RBI. US Treasury Secretary Janet Yellen called for a concerted effort to regulate.

We need high regulatory standards globally and we have to take steps to reduce the cost of cross-border payments. We also need to work with multilateral banks such as the Financial Action Task Force and the International Monetary Fund. We go with the global risks and some of the benefits of digital currencies.

Government officials said countries have different views depending on their interests. Officials argued that countries like the United States might not be in favor of a ban because cryptocurrencies promote the dollarization of the global economy.

They also acknowledge that there are ways around bans, and given the impossibility of deploying failsafe mechanisms, there may be better options than bans. 

The RBI argues the ban because the security does not have the underlying assets to back it. The central bank has said that allowing digital currencies will not only lead to dollarization, but also make it more difficult to regulate currency and financial markets. In addition, it has raised concerns about tax evasion and money laundering, which have been difficult for proponents of regulation to address.

The RBI’s position has been strengthened by the recent actions of investigative agencies like the ED which unearthed cases of illegal money transfers abroad. On regulations, Prime Ministers Narendra Modi and Nirmala Sitharaman have argued that it may be difficult for a country to move unilaterally and that a global effort is needed.

What could happen if the government regulates cryptocurrency?

There are distinctive opinions on what could happen if the government regulates cryptocurrency. Some believe it would legitimise the digital currency and attract more investors, while others fear that too much regulation could stifle innovation.

Still, others believe that government regulation is inevitable and think it would be best to work with lawmakers to ensure that any limitations are fair and don’t hamper the industry’s growth.

What is certain is that more clarity from the government on how it plans to regulate cryptocurrency would be welcomed by many in the industry.

The government is looking for a resolution on the crypto rule at G20 by 2022. This suggests that the government still needs to figure out how to regulate cryptocurrencies. Nonetheless, the fact that they are looking for a way to regulate it indicates that they are slowly but surely coming to grips with this new asset class. As multiple institutional investors enter the space, we will likely see further clarity on this matter in the near future.