Earlier this year, Union Finance Minister Nirmala Sitharaman stated that India is hoping to create cryptocurrency standard operating procedures during its G20 presidency the next year, stressing that all nations want the technology to exist but not be misused.
Now, the Reserve Bank of India (RBI) stated in its recently released Financial Stability Report that one of the goals of India’s G20 presidency was to create a framework for international regulation of unbacked crypto assets. At the event, India plans to create a framework for international regulation, including the potential for outright bans on unbacked crypto assets, stablecoins, and DeFi.
RBI offered three proposals for regulating digital currencies in the report. According to the report, one option was to ban crypto assets. It mentioned the next to negligible real-world use cases and various regulatory supervision methods used in different countries as justification for this action. According to the report, another option involved using the same-risk, same-regulatory-outcome principle to subject cryptocurrency exchanges to the same regulation as traditional financial intermediaries and exchanges. As the underlying instability and riskiness will ultimately prohibit the sector from expanding, a third option is to let it disintegrate and render it systemically irrelevant. This option, however, has risks since the industry may become more integrated into mainstream banking and redirect funding away from it, which would have a larger impact on the real economy.
RBI is among one of the most vehement sceptics of the crypto industry. Last week, RBI Governor Shaktikanta Das issued a warning, stating that unless private cryptocurrencies are forbidden, the next financial crisis will be caused by their use.
The Group 20 presidency which consists of 19 countries from different continents and the EU, accounts for 85% of global GDP. Additionally, non-member nations like Singapore and Spain as well as international bodies like the World Bank and the IMF are invited.
The FTX cryptocurrency exchange’s collapse and insolvency, followed by a sell-off in the market for digital assets, have brought to light the system’s fundamental flaws. The collapse of FTX follows Binance’s ban on stablecoin withdrawals, crypto exchange platform Vauld’s suspension of withdrawals and the bankruptcy of cryptocurrency hedge firm Three Arrows Capital. According to RBI, the even demise of the TerraUSD/Luna cryptocurrency is a reminder of how traditional confidence runs may affect so-called stablecoins, which claim to keep a stable value in relation to fiat money.
Even so, there are reportedly 115 million users in India, despite the government’s generally unfavourable stance on cryptocurrencies. If this proposal is approved, the prohibition might cause the developing industry to suffer a serious setback.