“The risk which worries me more on the non-governmental domain is unhosted wallets through which this entire (crypto) operation takes place across the globe. So regulating cannot be done by a single country within its terrain through some effective method. Technology doesn’t have a solution which would be acceptable to various sovereigns,” Union Finance Minister Nirmala Sitharaman said at a panel discussion organised by the International Monetary Fund (IMF) on April 18.
The discussion saw participation from Roberto Campos Neto, President, Central Bank of Brazil; Kristalina Georgieva, Managing Director, IMF; and Ravi Menon, Managing Director, Monetary Authority of Singapore (MAS). It was moderated by Gillian Tett, chair of the editorial board and editor-at-large (US) of the Financial Times.
She batted for a unified approach toward regulations in order to keep an eye on issues related to money laundering.
“I harp on that very much because I think the biggest risk for all countries across the board will be on the money laundering aspect and also on the aspect of currency being used for financing terror.” — Sitharaman
Finance Minister Nirmala Sitharaman’s comments suggest that the Indian government continues to remain circumspect about the benefits of cryptocurrencies. They also indicate that India may be looking for a collective response to the question of crypto regulations.
What else did the panellists discuss?
‘Needed a paper trail’
When asked about India’s move to tax crypto assets, Sitharaman explained that the government was not sure if the FATF’s money trail was being tracked in these transactions. She said that the government’s decision to tax crypto was also motivated by the fact that there was no regulatory mechanism looking at crypto assets.
“We will be able to know who’s buying and who’s selling it, and one per cent (TDS) is not additional tax over the 30 per cent. We were trying to make sure that we are keeping a trail and also making sure these (transactions) are compliant with anti-money laundering rules and don’t end up funding terror activities inadvertently,” she reiterated.
She acknowledged that crypto activities were becoming extensive, and clarified that the government has not legitimised it.
“We don’t recognise crypto assets as currency because currency is backed by the central bank of the country, or the country’s government. So that is yet to happen in our country, and it is going to happen this year,” Sitharaman disclosed.
IMF advises against using crypto assets as currency
Kristalina Georgieva of IMF said: “Crypto assets that are quite volatile can hardly be deployed as money, and we actually advise against adopting them as money. But stable coins have the potential to serve as an intermediary between savers and those who are interested in investments in this new digital world.”
She added that private digital money can try to do wrong things like support crime or terrorism while higlighting some of the risks. “They can avoid taxation in a way that affects the public purse. The production of some of them like Bitcoin means using energy in massive amounts which in some countries is already causing a deficit of energy supply,” she said.
Georgieva said that the IMF was concentrating on three questions:
- Interoperability: How can central bank digital currencies communicate with each other?
- Regulation: What does it mean to regulate privately-issued stable coins? How can regulation be agile and adaptable? “We need to recognize that disruptive is good but destructive is bad. We have to be able to follow digital money to prevent destructive activities. It means knowing the wallets and having some standards around the functioning of these wallets,” she said.
- Risk from cyber attacks: How do we strengthen our capacity to deal with these risks? “Also for small countries, there is a danger that they would lose monetary sovereignty because other countries’ central bank digital cryptocurrencies will take over,” Georgieva concluded.
‘Intersection of texting, payments, and content’
Roberto Campos Neto said that one needs to regulate with a forward-looking approach. “You want to make sure that competitive today means competitive tomorrow, but when it’s non linear, it’s more difficult to regulate.”
“We do not know what financial intermediation is going to look like in four years. The real challenge is identifying tendencies and understanding how central banks cope with it. But in 2019, we’re starting to see merging between texting, payments and content. You’re seeing the verticalization of the sales process from having the content, the payment and the messaging for understanding what people thought about the product generating a lot of data. We started to see a run for the data,” Neto said.
“When we talk about crypto assets, people focus too much on the asset itself. But the beauty is the network that is being created. The networks being created with the protocols will change financial intermediation in the future,”
‘Bigger than the wave of securitisation’
Ravi Menon remarked that cryptocurrencies are just one small sliver of the full potential of what a crypto asset economy might look like, or a tokenized economy where you tokenize assets.
“The real benefit is that hitherto unmonetisable assets say, a farmer’s cows, a person’s ship or a boat, art, all manner of assets, items of value, which today can’t be monetized, can potentially be tokenized and put on the distributor ledger,” Menon said.
Menon said that MAS was keeping a close eye on stable coins. “They need to be taken seriously. Stable coins will become a feature in the world as long as their backing is strong. In fact, stablecoins could challenge the currencies of many small or emerging market economies because of their widespread usage,” Menon added.
Menon stated that in a competition between public money and private money, public money has always won in history. “Private money tends to degrade over time,” he said.
Also Read:
- Summary: UK government to devise regulatory framework for stablecoins and crypto assets
- IMF calls for level-playing field in global regulatory framework for crypto assets
- Summary: IMF’s report on CBDC advocates information-sharing among countries for successful roll-out
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