Developing Global Crypto Regulation on the Priority List of G20

Developing Global Crypto Regulation on the Priority List of G20                              

The Reserve Bank of India’s (RBI) priority list for the G20 under India’s presidency is to "develop a framework for global regulation, including the possibility of prohibition of unbacked crypto assets, stablecoins, and Defi." The Indian central bank has warned that "turmoil in the crypto asset market" is among "the major risks that can potentially undermine global financial stability."

RBI on Crypto Assets Regulation

The Reserve Bank of India (RBI) released its Financial Stability Report (FSR) for December on Thursday. The 172-page report includes discussions on crypto assets, central bank digital currencies (CBDCs), and decentralized finance (Defi).

"Regulating new technology and business models after they have grown to a systemic level is challenging," the RBI report states. "To promote responsible innovation and mitigate financial stability risks in the crypto ecosystem, it is vital for policymakers to design an appropriate policy approach." The Indian central bank continued:

"In this context, under India’s G20 presidency, one of the priorities is to develop a framework for global regulation, including the possibility of prohibition of unbacked crypto assets, stablecoins, and Defi."

The central bank named "turmoil in the crypto asset market" one of "the major risks that can potentially undermine global financial stability." The RBI also said crypto assets are highly volatile, "exhibit high correlations with equities," and have fallen as inflation has risen.

The report further states that the collapse of crypto exchange FTX and subsequent crypto market sell-offs "have highlighted the inherent vulnerabilities in the crypto ecosystem." It also highlights the Terra Luna meltdown in May and the bankruptcy filings of several major crypto firms, including crypto hedge fund Three Arrows Capital (3AC) and crypto lender Celsius Network.

G20 Members to Build Policy Consensus

Ajay Seth, India’s economic affairs secretary, said earlier this month that the G20 members look to build a policy consensus on crypto assets for better global regulation. Indian Finance Minister Nirmala Sitharaman said in October that crypto will be part of India’s agenda during its G20 presidency, adding that she hopes a technology-driven regulatory framework for crypto assets will be accomplished.

The members of the Group of 20 (G20) are Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, the Republic of Korea, Mexico, Russia, Saudi Arabia, South Africa, Turkey, the UK, the US, and the European Union. The group represents around 85% of the world’s GDP.

India’s central bank, however, has repeatedly recommended banning all non-state-issued cryptocurrencies, including bitcoin and ether. Last week, RBI Governor Shaktikanta Das warned that cryptocurrencies will cause the next financial crisis if they are not banned. However, India’s finance minister said in July that both banning and regulating crypto could only be effective with significant international collaboration.

What is your take on the development of global regulation for crypto assets? Please post your comments.