Nirmala Sitharaman, Indian Finance Minister, unveiled the Economic Survey today, prior to the Union Budget session for FY24. It is believed that the mention of crypto and need for its regulations in an Economic Survey has been done for the first time. At the beginning of the crypto section, emphasis has been placed on the recent FTX debacle and concerns laid by Federal Reserve, Federal Deposit Insurance Corporation (FDIC), and Office of the Comptroller of the Currency (OCC) on crypto assets to the banking system.
Going by insights from the Economic Survey, it highlighted the presence of volatility around crypto assets market, with its total valuation ranging from around three trillion dollars in November, 2021, to under one trillion dollars in January, 2023. “The volatility of the crypto asset ecosystem has brought to the forefront their fragile backing and governance problems, as well as the increasing complexity and non-transparency. With related financial stability risks rising, the issue of crypto asset regulation has recently moved up the policy agenda of many nations,” the Economic survey stated.
“The recent FTX crash has prompted governments to draft regulations to prevent similar incidents and protect the public’s funds. Implementing comprehensive regulations is crucial for fostering innovation and combating financial crimes such as money laundering and fraud,” Edul Patel, founder and CEO, Mudrex, a cryptocurrency investment platform, said.
Furthermore, the Economic Survey emphasised on how control of crypto assets lies amongst a concentrated amount of individuals. “Estimates show that around 85 per cent of all circulating Bitcoins are held by 4.5 per cent of entities (Ben Mariem et al., 2020). The underlying protocols used to create crypto assets may also conflict with other public policy objectives, for instance, the massive energy intensity of “mining” crypto assets,” the Economic Survey added.
“In general, the fundamental regulatory principles used in the conventional banking industry can be adapted in the cryptocurrency industry. This could include requiring exchanges to implement similar measures, such as stringent KYC requirements, transaction monitoring, reporting suspicious activity, and strict internal controls for the purpose of discovering and preventing money laundering and other illegal activities,” Rajagopal Menon, vice-president, WazirX, a cryptocurrency exchange, said.
At the concluding parts of the Economic Survey, it focused on case studies belonging to countries and jurisdictions such as European Union, Japan, United Kingdom, among others, and how they have attempted to regulate unbanked crypto assets. “Therefore, global standards need to be comprehensive and consistent; regulatory responses must be based on standard taxonomies, reliable data to address contagion effects, and flexible enough to be adjusted in the future based on market developments and future international standards,” the Economic Survey concluded.
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