EIU’s Swarup Gupta on the need for a comprehensive global crypto regulation
At a time when cryptocurrency or digital assents have caught the fancy of the world, there are many countries which have gone ahead and issued its own Central Bank Digital Currency (CBDC). According to a latest report by Atlantic Council, an independent organisation based in Washington, D.C, till March 2022, 87 countries have considered issuing a CDBC. Of this nine countries including The Bahamas, Nigeria, besides seven countries in Eastern Caribbean Union, have already rolled out their own. However, what lacks is one regulation that may provide a smooth way of transaction, that too cross border. Swarup Gupta, financial services lead and head, ESG, Economist Intelligence (The EIU), in conversation with FE Digital Currency talks about how the introduction of comprehensive global crypto regulation can resolve the resilience of financial firms like banks in developing countries. (Edited Excerpts)
Is there a false fear of digital currencies intervening with current banking system?
Most digital currencies, with the notable exception of China’s eYuan, are designed to be minimally invasive from their inception. This would ensure that they would have a minimal impact on the commercial banking system. Some of them, such as the digital ruble could only be used for special purposes alone and even in developing countries the primary motivation for the introduction of central bank digital currencies (CBDCs) is financial inclusion so there is no intention of upsetting the existing network of commercial banks.
Is there a need for a comprehensive global crypto regulation?
We do need comprehensive global crypto regulation in order to eliminate the scope for regulatory arbitrage. However, this is unlikely to occur in the near term, though calls for such globally valid laws are emanating from the US. What is likely to be visible is coordination on existing international legislation, especially those targeting financial crime, and stringent enforcement of these existing laws. Wide variance, however, is likely to be visible on the cryptocurrency tax regulation front, with those countries positioning themselves as crypto havens likely to soft-pedal on this front. On the other hand, governments which take a dim view of the sector, such as India, are likely to levy onerous taxes on the industry.
What will be the impact on the degree of cash available in the market?
Cash in circulation declined across the world after the Covid-19 pandemic, and in some emerging countries, more than 50% of payments have now become digital. The infrastructure was in place in many cases, particularly in those countries with strong digital public goods like India, and the Covid-19 pandemic delivered the necessary push.
How Central Bank Digital Currency (CBDC) will play a lead role in capital controls?
The introduction of a CBDC alone cannot ensure stringent capital controls. Better regulation of the blockchain industry, including, crypto, non-fungible tokens (NFTs), play-to-earn gaming, and other variants, alone can deter and prevent money laundering and other modes of financial crime via the crypto route.
Also Read: Digital currencies in governance: the balance between privacy and transparency
