Concrete plan needed for crypto: G20 paper

The crypto ecosystem needs comprehensive regulatory and licensing mechanisms for macroeconomic and financial stability, a synthesis paper prepared for the G20 has said, cautioning governments 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

- Rajeev Jayaswal

The paper, prepared by the International Monetary Fund (IMF) and the Financial Stability Board (FSB), said a comprehensive response is necessary.

“To address macroeconomic risks, jurisdictions should safeguard monetary sovereignty and strengthen monetary policy frameworks, guard against excessive capital flow volatility and adopt unambiguous tax treatment of crypto-assets,” it said.

The paper synthesises IMF’s views on macroeconomic risks and FSB’s regulatory aspects, is in lines with India’s position that cryptocurrencies could pose huge risks to the stability of the financial system, hence global cooperation on this matter was warranted, an official said, asking not to be named.

The G20 India Presidency placed it as one of the key economic challenges and the synthesis paper has come out with a comprehensive road map, subject to the approval of leaders, the person said, adding that the recommendations of the paper are only guiding principles and not binding on countries.

Cryptocurrencies, such as Bitcoin and Ether, and products developed around them --- including for loans --- fall outside of the purview of formal financial systems since their value is often determined by demand, without any underlying asset.