Crypto issue requires immediate attention, says FM Nirmala Sitharaman

Issues related to crypto assets require immediate attention and the response of the G20 has to ensure that they do not lose any potential benefits while protecting economies from harm, Union Finance Minister Nirmala Sitharaman has said.

Sitharaman was part of a brainstorming session on “Macrofinancial Implications of Crypto Assets” with G20 finance ministers and central bank governors at the IMF’s headquarters here on Friday. India currently holds the rotating annual presidency of G20 countries.

Issues related to crypto have emerged as a major point of discussion among G20 countries and there is unanimity among member nations about the urgency to regulate this sector. The brainstorming session was attended by global experts on this issue.

In her remarks, Sitharaman said the G20 acknowledges the work of the International Monetary Fund (IMF) and the Financial Stability Board (FSB) in bringing out key elements of policy and regulatory framework.

She also said a synthesis paper, which would integrate macroeconomic and regulatory perspectives of crypto assets, is required.

The minister noted that there was consensus among G20 members to have a globally coordinated policy response on crypto assets that takes into consideration the full range of risks, including those specific to emerging markets and developing economies.

Earlier this week, Sitharaman had said that India’s G20 Presidency aims to develop a common framework for all countries to deal with risks associated with cryptocurrencies in the wake of the recent shocks witnessed in the crypto market.

The last year episode of FTX’s bankruptcy, and its spat with Binance triggered a huge sell-off in the market and reduced liquidity. This event made the world realise the vulnerability of this asset class as they do not have any underlying value.

“Cryptocurrencies are a very important part of the discussion under the #G20India presidency, given so many collapses and shocks in cryptocurrencies. We seek to develop a common framework for all countries to deal with this matter,” she had said at a discussion at Peterson Institute for International Economics here.

According to the chair’s summary released at the end of the two-day meeting of the first Finance Ministers and Central Bank Governors (FMCBG) held in February, the grouping will be looking forward to the IMF-FSB Synthesis Paper on crypto assets.

“I am glad to say one thing: there is almost a clear understanding that anything outside the central bank is not a currency. And this is a position that India has been taking for a very long time and we are glad that such a position of India is now also getting acknowledgement from so many different members. People recognise that the technology is very useful for fintech,” she had said after the conclusion of FMCBG.

Further, in July, the FSB’s paper on crypto assets regulation will be tabled so that it could be discussed at the next meeting of the finance ministers and central bank governors.

The International Monetary Fund-Financial Stability Board (IMF-FSB) synthesis paper will be submitted in September, she added.

Despite the rapid evolution of the crypto universe, there is no comprehensive global policy framework for crypto assets. Given the concerns over greater interconnectedness between crypto assets and the traditional financial sector as well as the complexity and volatility around crypto assets, policymakers are calling for tighter regulation.

The global standard-setting bodies, such as the Financial Action Task Force (FATF), Financial Stability Board (FSB), Committee on Payments and Market Infrastructures (CPMI), International Organization of Securities Commissions (IOSCO) and Basel Committee on Banking Supervision (BCBS), have been coordinating the regulatory agenda while working within their respective institutional mandates.

India hopes to broaden the G20 discussion on crypto assets beyond financial integrity concerns and capture the macroeconomic implications and widespread crypto adoption in the economy.