India Highlights Need for ‘Common Approach to Regulating Crypto Ecosystem’ – Nirmala Sitharaman, India’s Finance Minister, delivered the Economic Survey 2022-23 to Parliament on Tuesday. The Economic Survey is the Ministry of Finance’s yearly flagship document that reviews the performance of the Indian economy in the previous financial year and provides an economic projection for the current financial year. Including cryptocurrency for the first time this year, the Economic Survey highlights the “necessity of a common approach to regulating the crypto ecosystem.”
The 414-page document explains, “The recent collapse of the crypto exchange FTX and the ensuing sell-off in the crypto markets have placed a spotlight on the vulnerabilities in the crypto ecosystem,” elaborating: “Crypto assets are self-referential instruments and do not strictly pass the test of being a financial asset because it has no intrinsic cashflows attached to them.” India’s central bank, the Reserve Bank of India (RBI), has also repeatedly warned that crypto has no intrinsic value, adding that they pose risks to the country’s financial stability.
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The RBI has recommended banning cryptocurrencies like bitcoin and ether. The Economic Survey also states that “U.S. regulators have disqualified bitcoin, ether, and various other crypto assets as securities.” However, the chairman of the U.S. Securities and Exchange Commission (SEC), Gary Gensler, has confirmed that bitcoin is a commodity but would not comment on ether. Nonetheless, he stressed that most other tokens are securities.
The Economic Survey issued by the Ministry of Finance then refers to a joint statement issued on Jan. 3 by the United States Federal Reserve, the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC) highlighting the three agencies’ concerns about the risks cryptocurrencies pose to the banking system. The Survey continues: “The geographically pervasive nature of the crypto ecosystem necessitates a common approach to the regulation of these volatile instruments. In this context, the global response to cryptos is evolving.”
The document proceeds to discuss the current regulatory approaches worldwide, including in the European Union, Japan, Switzerland, the U.K., Albania, and Nigeria. “Monitoring and regulating cryptocurrencies have been tricky, and regulators across the globe find it challenging to keep track of the new and emerging issues in the fast-moving uncharted field,” the Survey adds, noting: “There are minimal global standards applicable to unbacked crypto assets, which do not currently mitigate all risks and vulnerabilities.”
The Survey details that standard-setting bodies have been making efforts to adjust and develop standards for regulating crypto. However, they focus on specific issues or sectors. “Thus, there are regulatory gaps at each stage when crypto assets are issued, transferred, exchanged, or stored by non-bank entities,” the document concludes. India has been trying to develop a crypto policy for several years. A draft crypto bill was published in July 2019 but was not taken up in parliament.
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According to the finance minister, the Indian government intends to discuss crypto regulation with G20 countries in order to build a technology-driven regulatory framework for crypto assets. The government announced its intention to begin a crypto awareness initiative last month. Meanwhile, the RBI is testing its own digital money (CBDC). A wholesale digital rupee test began in November of last year, followed by a retail pilot in December.
