India Wants Universal Crypto Regulations, Calls For Banning Stablecoins and Unbacked Crypto Tokens
At the G20, India called on lawmakers to develop a global framework to regulate cryptocurrencies. Meanwhile, the country's central bank wants to prohibit stablecoins and decentralized finance.
Last week, the Reserve Bank of India (RBI) released its Financial Stability Report (FSB) for December which goes in alignment with the country’s position on regulating the crypto industry.
Earlier last month, India began its year-long presidency of the G20 or Group 20, a global society comprising 19 nations and the European Union (EU), representing 85% of the world’s GDP. The group meets every year to discuss major issues related to the global economy, such as financial stability, climate change mitigation, and sustainable development. Global financial authorities including the International Monetary Fund (IMF) and World Bank are also participants in the G20 Summit.
On Thursday, while addressing the G20, the Indian government said that it will be prioritizing the development of a global framework for regulating “unbacked crypto assets, stablecoins and decentralized finance (DeFi). The country is also looking into the possibility of potentially banning the instruments and their related services, in what is turning out to be a major setback for the crypto industry.
In its latest report, the RBI highlights the current turmoil faced by crypto markets, pointing out that cryptocurrencies are highly volatile assets with “structural vulnerabilities” while accusing the instruments of claiming to be an alternative to traditional financial assets and posing as having inflation-hedging capabilities. The central bank is concerned that the sector is becoming increasingly interconnected with the traditional financial system.
The Reserve Bank of India is recommending that the G20 create a global regulatory framework for cryptocurrencies that are grounded by the principles of the “same activity, same risk, same regulation” approach. The FSB report also proposes that authorities should have appropriate “powers, tools and resources” to “regulate, supervise and oversee” crypto assets and their associated markets, both domestically and internationally. Moreover, the document also suggests lawmakers develop extensive governance and risk management framework that address financial stability risks that come from cryptocurrencies interconnecting with traditional investment products, like equities, and an appropriate disclosure scheme for the assets.
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The guidelines are in contention with the Bank of International Settlements (BIS) proposal for setting a global standard for banks with exposure to cryptocurrencies. Under the plan endorsed by BIS’s Group of Central Bank Governors and Heads of Supervision (GHOS), crypto assets will be categorized into two groups, one which includes tokenized traditional assets and crypto with effective stabilization mechanisms that are subject to capital requirements, and the second one that comprises of unbacked cryptocurrencies and stablecoins. The framework which is expected to come into effect by January 1, 2025, endorses a policy requiring banks to hold 2% of their reserves in cryptocurrencies and provide proper disclosure of their holdings to authorities.
India’s central bank has always maintained an anti-crypto stance, even calling for a complete ban on assets. Earlier last month, RBI Governor Shaktikanta Das warned a group of bankers and lawmakers that cryptocurrencies would probably cause the next financial crisis. The governor asserted that crypto has no “underlying value” and poses a great risk for global macroeconomic and financial stability.
“After the development of the last year, including the latest episode surrounding FTX, I don’t think we need to say anything more. Crypto or private cryptocurrency is a fashionable way of describing what is otherwise a 100 per cent speculative activity,” said Das
In December, the RBI announced a pilot program for the e-Rupee, its highly anticipated central bank-issued digital currency (CBDC). The digital rupee is currently being tested for interbank settlements among public-sector banks in the wholesale sector and with a select group of merchants and businesses in the retail sector. Earlier this year, the Indian government levied a 30% tax on crypto gains and a 1% deduction on every transaction involving cryptocurrencies. This was a major hit to crypto investors in the country.
India has 600 million active internet users, making it the world’s second-largest internet market. Several analysts and market players have criticized the government’s plan to stringently regulate crypto, citing that such an approach would limit the growth of the sector in one of the largest and fastest growing economies.