MC Explains: How India's crypto fight could bear fruit at G20 Leaders' Summit

The Indian government has been blamed for not clearly articulating its position on digital currencies. The Reserve Bank of India (RBI), on the other hand, has been extremely outspoken in its criticism of cryptocurrency.

In the middle of 2022, after what seemed like an eternity, the government finally explained why it had been so reluctant to establish rules to oversee domestic crypto operations; after all, crypto is a notion that, by its very nature, transcends borders and jurisdictions. Since other countries did little to stop the spread of cryptocurrency, the RBI's efforts to restrict it were futile.

Therefore, it was necessary to start with a worldwide conversation about crypto and its associated dangers. It is therefore likely to the credit of the government - and the RBI's - that tangible progress has been achieved on the international stage in the crypto area, with India using its G20 Presidency to compel a conversation on the subject in an effort to obtain some type of consensus on minimal regulations.

With the G20 Leaders' Summit happening on September 9-10 in New Delhi, Moneycontrol provides insight into what has been accomplished, the current state of discussions, and what is ahead.

Regardless of the outcome of the Leaders' Summit in September, India's most significant contribution to the global crypto industry may have been the country's outspoken criticism of cryptocurrencies.

Up until this past year, most of the work being done on a global scale was focused on reducing threats to the financial system. Economic Affairs Secretary Ajay Seth remarked on July 18 in Gandhinagar, during a meeting of G20 Finance Ministers and Central Bank Governors, that "the Indian Presidency brought the focus on macroeconomic risks."

Clearly, the RBI is pleased, and Governor Shaktikanta Das is especially pleased that countries and multilateral organisations have largely come around to agree with what the Indian central bank has been saying "for more than one year about the macro-financial and stability implications, and the huge risks involved in cryptocurrencies."

To be honest, the RBI's warnings about cryptocurrency go back further than the past couple of years. In fact, it's been doing that for about a decade. Specifically, it issued a public alert about the "potential financial, operational, legal, customer protection, and security-related risks" associated with cryptocurrencies like Bitcoin.

Is India's campaign to warn the world's largest countries about the dangers of cryptocurrencies having an impact? Certainly, the governor of the Reserve Bank of India (RBI) revealed in February that some G20 members thought a total ban on crypto should be explored.

Body of literature

Multilateral agencies' activity is a crucial component of the G20's discussions on crypto.

In February, the International Monetary Fund (IMF) released a note for the G20 regarding the macroeconomic implications of crypto assets. This was followed by recommendations from the Financial Stability Board (FSB) concerning the regulation, supervision, and governance of crypto-asset activities and markets, as well as "global stablecoin arrangements."

The Bank for International Settlements (BIS) has also submitted a report detailing the ecosystem's main components and associated risks.

The Indian Presidency's crypto guidance note, which was presented and deliberated at a meeting of Finance Ministers and Central Bank Governors in Gandhinagar earlier this month, brings everything together.

What remains are the two most essential documents: a joint IMF-FSB paper on synthesis and another on the way forward.

"The thinking is that there should be a bare minimum – two high-level recommendations have stated that there should be a bare minimum; beyond that, if any jurisdiction wishes to be more stringent based on its own circumstances, it should do so. Seth told reporters in Gandhinagar that nobody should fall below the essential minimum.

At the Leaders' Summit, both the synthesis paper and the roadmap document will be discussed.

What next?

Of course, no one can predict with any certainty what will occur during the Leaders' Summit in September.

It's going to be extremely hard for me to speculate at this point as to what type of restrictions they talk about unless the conversations reach some kind of crystal-clear thinking. Finance Minister Nirmala Sitharaman remarked on July 18 that they would have to wait until the next meeting, the Summit, and after the Summit, when they travelled to Marrakesh.

From October 9-15, the annual conference of the World Bank Group and the International Monetary Fund will be held in the Moroccan city of Marrakesh.

In any case, India has great hopes that the Leaders' Summit will produce some form of conclusion on crypto. This "outcome" might be anything from public acknowledgement and gratitude for the Indian Presidency's efforts to the formal establishment of a plan of action.

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If that plan proves useful, it can be passed on to the next administration along with the question of whether or not to implement new regulations or use an existing model. Moneypoise, citing a source familiar with the talks, said on July 16 that "if there is a template, it should be about who does what, the implementation and legislative requirements, et cetera."

India is not doomed if policymakers there are unable to agree on a framework for regulating cryptocurrencies or a timetable for putting it into effect. After all, "deliverables" and "deals" are not what the G20 forum is about.

In Gandhinagar, Seth had observed, "It is about building institutions and taking the discourse forward." Unquestionably, India has advanced the crypto discussion.