India may opt for additional measures to regulate crypto

India may choose stricter regulation of crypto-assets than the minimum basic regulatory threshold prescribed by the G20.

India may choose stricter regulation of crypto-assets than the minimum basic regulatory threshold prescribed by the G20 and a decision on this matter would be taken by the government after consulting all stakeholders, including the Reserve Bank of India (RBI), two officials said on Sunday.

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The regulatory outline discussed at the G20 Summit was in the form of a synthesis paper that provides “basic minimum recommendations” on regulating crypto-assets, these people said, asking not to be named.

The synthesis paper covered policy recommendations from the International Monetary Fund (IMF), and regulatory provisions proposed by the Financial Stability Board (FSB), which are not binding on any member of the G20, they added.

The paper pointed at the highly disruptive potential of crypto-assets for financial stability as it advocated the need for regulations, since a complete ban by one country would be difficult because of the nature of crypto’s digital and borderless characteristics, an official said.

“The paper recommends a minimum level of regulation, but any country is free to choose additional measures. Some may even ban it completely. But no country should have less regulatory measures that what is recommended in the paper endorsed by the Delhi Declaration,” he added.

Comprehensive regulatory and licensing mechanisms are needed for macroeconomic and financial stability, the report cautioned, adding that widespread adoption of cryptocurrencies and assets based on them could undermine the effectiveness of monetary policy, circumvent capital flow management measures, exacerbate fiscal risks, divert resources available for financing the real economy, and threaten global financial stability.

“As the paper highlighted risks of crypto-assets, similar to the RBI’s position, a comprehensive discussion would be required before taking any final policy decision. The government will also discuss the matter with stakeholders afresh in the light of the synthesis paper and take a decision appropriate for the country, its monetary system and its economy,” a second official said.

Cryptocurrencies are unregulated in India. While RBI had voiced concerns over the adverse effect of cryptocurrencies on the Indian economy, the Union government has been of the view that any unilateral ban or regulation would be ineffective since enforcement will also depend on other countries. At present, India has put a tax on incoming crypto transactions at a rate of 30% in order to dissuade its use.

RBI had been cautioning users, holders and traders of crypto-assets, including virtual currencies (VCs) through public notices on December 24, 2013, February 1, 2017 and December 5, 2017 that dealing in VCs was associated with potential economic, financial, operational, legal, customer protection and security related risks, the second person said.

RBI also issued a circular in April 6, 2018 prohibiting its regulated entities – banks --- to deal in virtual currencies (VCs) or provide services for facilitating any person or entity in dealing with or settling VCs. That circular was, however, set aside by the Supreme Court on March 4, 2020.

Movement on regulation of crypto-assets was one of the seven key achievements of the finance track under the G20 India Presidency, finance minister Nirmala Sitharaman said on Saturday at a press conference immediately after the New Delhi Declaration. “The global push for clearer policy for crypto-assets have gained momentum,” she said as the declaration supported a “coordinated and comprehensive policy and regulatory framework” considering the underbelly of crypto assets, including money laundering and terror financing.

Nilaya Varma, CEO & co-founder of consultancy firms Primus Partners, said the India G20 presidency emphasized the need for a comprehensive regulatory framework to safeguard national interests, enhance user awareness, and support technological development, all while avoiding a blanket ban. “This stance aligns with recommendations from international organisations and standard-setting bodies. India’s burgeoning population and growing adoption of VDAs position it as a key player in the global Web3 space, but decisive domestic policy implementation is crucial to harness this potential and transition from a talent exporter to a leader in services, technology, and products in the crypto sector,” he added.