Virtual digital assets regulation in G20 countries: Towards a global governance framework

Authored by: Meghna Bal and Mohit Chawdhry.

Statements made by public officials in certain G20 member-States as well commentaries by financial analysts suggest that emerging market economies stand on a different footing from developed counterparts in their regulation of virtual digital assets. They attribute these differences to the distinct institutional, demographic, and economic vulnerabilities of developing countries. This paper examines this notion by presenting a quantitative analysis of the positions taken by G20 member-countries on different facets of virtual digital assets regulation. Members were divided into two groups—G7 and non-G7 advanced economies, and emerging economies—to understand whether a country’s economic profile influences its regulatory policies on virtual digital assets. The paper finds that regulatory approaches to virtual digital assets do not vary significantly between G20 advanced and emerging market economies. It identifies gaps in regulatory approaches across member nations, and offers a useful guide for creating a global regulatory framework.

Traffics moves past an illuminated G20 logo near the airport ahead of the G20 Summit in New Delhi. (AP)

The G20 under India’s presidency is aiming to devise a global framework for the governance of virtual digital assets (VDAs)—an urgent imperative, given concerns surrounding the rapid rise of VDAs, the cross-border nature of VDA exchange and trading activity, and the implications they may have for financial stability and “increasing interconnectedness with the traditional financial system”. According to the Financial Stability Board (FSB), a global governance framework for VDAs would seek to comprehensively address the risks posed by them and related market activities, while harnessing the benefits of the underpinning innovation.

The scope of the term “virtual digital assets” in this paper includes all types of digital assets except central bank digital currencies (CBDCs). The authors have excluded CBDCs because they are distinct from other types of digital assets as they are a form of legal tender and a liability on the Central Bank. However, some of the official documents referenced in this paper include CBDCs within their scope as they do not, for the purposes of certain types of policy, distinguish between CBDCs and other VDAs.

Most G20 states already have some form of legislation in place for the supervision of VDA activities. This paper examines the regulatory positions taken by G20 member countries, makes a quantitative assessment of policy positions, and identifies points of confluence and divergence across two groupings—emerging market, and G7 and Non-G7 advanced economies. The paper divides the G20 into these two groups because some scholars in international organisations as well as government officials from member countries have postulated that the economic circumstances of countries—such as fiscal stability or approach to foreign capital flows—would necessarily inform varied approaches to digital asset regulation.

This analysis finds that approaches between emerging market and advanced economies in the G20 do not vary significantly. Using a quantitative assessment of qualitative factors, the paper also seeks to understand the gaps, if any, in approaches to VDA regulation across emerging and advanced G20 economies. The aim is to guide G20 members as well as the experts enlisted by them towards the creation of a global framework for VDA regulation.

The paper can be accessed by clicking here.

Authored by: Meghna Bal and Mohit Chawdhry.