India Highlights Need for ‘Common Approach to Regulating Crypto Ecosystem’

India’s Finance Ministry has highlighted the necessity for “a common approach to regulating the crypto ecosystem” in its flagship Economic Survey this year. “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,” the Indian government stated.

Indian Finance Minister Nirmala Sitharaman presented the Economic Survey 2022-23 in Parliament Tuesday. The Economic Survey is an annual flagship document of the Ministry of Finance that outlines the performance of the Indian economy in the previous financial year and presents an economic outlook 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. 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 Ministry of Finance’s Economic Survey then references a joint statement made on Jan. 3 by the U.S. Federal Reserve, the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC) which highlighted 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. The finance minister previously said that the Indian government plans to discuss crypto regulation with the G20 members in order to establish a technology-driven regulatory framework for crypto assets. Last month, the government unveiled its plan to launch a crypto awareness program.

Meanwhile, the RBI is piloting its central bank digital currency (CBDC). A wholesale digital rupee pilot was started in November last year while a retail pilot began in December.

What do you think about the Indian government including cryptocurrency in this year’s Economic Survey and its emphasis on a “common approach to regulating the crypto ecosystem”? Let us know in the comments section below.