By Dr. WAQUAR ANWAR
Crypto-currency is a misnomer. It is not a currency, as such, and is, at best, an asset. Recent crypto-related deliberations in G-20 Countries’ Summit at Bali in Indonesia on 15-16 November, 2022, as evident from the official declarations at the end of the summit, is a success story of the stand India had taken and was pursuing on the issue. The summit approved of the measures that are in the making for restricting, controlling and monitoring the role of Crypto currencies.
India has been consistent in its approach towards cryptos and its stand in the Supreme Court, announcements in the previous budget speech of the Union Finance Minister Nirmala Sitharaman, and her speech a few days before the beginning of the G-20 Summit.
Cases in the Supreme Court were being fought by interest-groups of Crypto on various grounds so that its transactions are not discouraged or discouraged by the Government. The stands taken by the Government of India and the Reserve Bank of India were based on following reasonings;
- These are denominated by foreign private entities;
- This would affect badly the capacity of the Reserve Bank of India to regulate capital flow;
- This will affect adversely the availability of resources to banking sector; and this will dollarise a segment of economy.
In the last budget speech, the Union Finance Minister had ushered in the idea that crypto currency was in the nature of a Digital Asset and its transactions, and capital gains in its sales should be subject incidence of taxation accordingly. She declared following tax structures:
- One percent tax at source by the payer;
- 30 per cent capital gains tax on sales and gifts without providing any rebate of any other expenses and without allowing carry forward of losses.
These were, obviously, harsh measures, which would have hit below the belt transactions of cryptos in India. Further, no country will succeed in such measure if similar measures are not done globally.
The Government of India wanted a consensus of measures on international level. Union Finance Minister Nirmala Sitharaman had said at an annual event hosted by the Indian Council for Research on International Economic Relations that there should be an international priority on the subject. She announced that this would be a big topic of discussion at the next G-20 summit. She had stressed in that meeting held ten days before the G-20 Summit that India aimed at encouraging international groups such as the International Monetary Fund, Financial Stability Board and the Organisation for Economic Co-operation to help form crypto regulations with all countries being on board.
The matter was raised and deliberated upon in the Summit. It is included in the final statement, called ‘G-20 Bali Leaders’ Declaration’, released at the close of the meeting. Initial portion of this Declaration says:
“35. We welcome ongoing work by the FSB (Financial Stability Board) and international standard setters to ensure that the crypto-assets ecosystem, including so-called stable coins, is closely monitored and subject to robust regulation, supervision, and oversight to mitigate potential risks to financial stability. We welcome the FSB’s proposed approach for establishing a comprehensive international framework for the regulation of crypto-asset activities based on the principle of ‘same activity, same risk, same regulation’. We welcome the FSB consultative report on the review of its high-level recommendations for the regulation, supervision and oversight of “global stable coin” arrangements. We also welcome the FSB consultation report on promoting international consistency of regulatory and supervisory approaches to crypto-assets activities and markets. It is critical to build public awareness of risks, to strengthen regulatory outcomes and to support a level playing field, while harnessing the benefits of innovation.”
There are several points worth noting in this Summit-declaration, including the following:
- It refers to the term crypto-assets, in line with the approach of India.
- Instead of referring to any currency or coins being used in the crypto ecosystem, it talks about stable coins. Thus, the instability, including volatilities which is the hallmark of existing crypto products, is abhorred and instead, future adorable and acceptable ‘coins’ must be stable.
- The dangers to national and global economies have been recorded. So, we find expressions like ‘mitigate potential risks to financial stability’ and ‘build public awareness of risks.’
- International robust monitoring and regulatory control have been called for.
- The necessity of a level playing ground for all nations, financially weak or strong, on the principle of ‘same activity, same risk, same regulation’ have been highlighted. Hence, the risk of dollarisation of economy and potential risks to weaker fiat currencies have been addressed.
- The growth of crypto ecosystem has been managed through speculations on the basis of unwarranted marketing efforts. Stories of poor and pauper becoming rich and moneyed overnight are floated, goading the imaginations of people at large. Obviously, such hypes have their down-runs too and the resulting market crash and exchanges becoming bankrupt whereby trillions of dollars got wiped out, are its natural outcomes. In this backdrop, one may appreciate the expression, “It is critical to build public awareness of risks.”
- All said and done, the need of percolating benefits, permeating all strata of society out of ‘innovations’ are described. Innovations are welcome provided it is in line with public-good and not at its cost.
As an overview, one may note that the approach of global nations goes just against the hype that if the moves as perceived in the above declaration of G-20 nations go accordingly, that would be death-knell for the crypto ecosystem, as that revolves around the ideas of peer-to-peer, avoidance of intermediary entities like governments, central banks and consequent controls and regulations.