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The G20 Summit this weekend will discuss the template and various building blocks for coordinated action on dealing with crypto regulation, potentially paving the way for a global regulatory framework. The paper, prepared by the International Monetary Fund (IMF) and the Financial Stability Board (FSB), said a comprehensive response is necessary.
"To address macroeconomic risks, jurisdictions should safeguard monetary sovereignty and strengthen monetary policy frameworks, guard against excessive capital flow volatility and adopt unambiguous tax treatment of crypto-assets," it said.
The paper synthesises IMF's views on macroeconomic risks and FSB's regulatory aspects, is in lines with India's position that cryptocurrencies could pose huge risks to the stability of the financial system, hence global cooperation on this matter was warranted, an official said, asking not to be named.
Cryptocurrencies, such as Bitcoin and Ether, and products developed around them — including for loans — fall outside of the purview of formal financial systems since their value Is often determined by demand, without any underlying asset.
"Crypto regulation and supervision of licensed or registered crypto-asset issuers and service providers can support the functioning of capital flow measures, fiscal and tax policies, and financial integrity requirements," the paper said.
1. Investor Protection: Regulation can help protect individuals and institutional investors from fraud, scams, and Ponzi schemes that are prevalent in the crypto space. It establishes rules and standards that crypto projects and exchanges must adhere to, reducing the likelihood of financial harm to investors.
2. Market Stability: Crypto markets are highly volatile, and lack of regulation can lead to extreme price manipulation and market manipulation. Proper regulation can help stabilize markets, making them more attractive to mainstream investors.
3. AML and KYC Compliance: Regulations ensure that cryptocurrency exchanges and businesses follow anti-money laundering (AML) and know-your-customer (KYC) procedures. This helps prevent illicit activities like money laundering and terrorist financing.
4. Taxation: Regulators can provide clear guidelines on how cryptocurrencies should be taxed, reducing ambiguity for taxpayers and ensuring governments collect the appropriate taxes.
5. Consumer Confidence: A regulated crypto industry can inspire confidence among consumers and businesses, encouraging broader adoption of blockchain technology and cryptocurrencies.
6. Fraud Prevention: Regulations can require transparency and accountability in the crypto industry, making it easier to trace and prosecute those engaged in fraudulent activities.
7. Innovation and Growth: Sensible regulation can foster innovation by providing a clear legal framework for entrepreneurs and businesses to operate within, attracting more talent and capital to the crypto space.
8. International Cooperation: As cryptocurrencies are global, international regulatory cooperation is essential to combat cross-border issues like money laundering, fraud, and cybercrime.
9. Systemic Risk Mitigation: Regulation can help prevent systemic risks that could arise from the interconnectedness of crypto markets with the traditional financial system.
10. Long-Term Viability: For cryptocurrencies and blockchain technology to achieve long-term viability and mainstream acceptance, they need to coexist with established regulatory frameworks.
