IMF makes case against crypto adoption

The International Monetary Fund (IMF) has flagged significant financial risks over allowing the use of cryptocurrencies, as India deliberates with multilateral agencies and domestic institutions about a planned regulatory framework, said government officials aware of the discussions.

India currently does not have a policy on digital assets, including crypto currencies such as Bitcoin and Ethereum.The absence of a policy has allowed people to own and trade in currencies and other digital assets, prompting the government to announce a 30% tax on digital trading.

The current round of talks is expected to lead to a consultation paper in the next six months aimed at helping India come up with a legal framework for regulating digital assets.

Indian finance ministry officials are in talks with various stakeholders including the IMF, World Bank, Reserve Bank of India, and Securities and Exchange Board of India (Sebi). According to one of the Indian government officials cited above, the finance ministry has ruled out the use of crypto currency as an asset.

While the IMF did not comment on the specific discussions with India, its mission chief for India Nada Choueiri told Mint that crypto assets posed significant risks, including to financial stability. “Crypto-assets can also be misused for money laundering, terrorist financing, and other illegal activities. Unless effective regulatory measures are implemented, the crypto-assets ecosystem could face serious consumer protection challenges such as fraud and cyberattacks,” said Choueiri.

She added that the IMF was deliberating with other countries too on the issue as a multilateral understanding or cooperation was required for effective policy.

The consultation paper by the finance ministry will cover how to deal with cryptocurrency, related risks and its treatment as an asset class. It will form the basis for a policy to regulate it.

“We have drafted a consultation paper on cryptocurrency. Now, we have reached out to institutional stakeholders within the country and outside. We are taking inputs from the IMF and the World Bank and incorporating these. We will update the consultation paper based on that, and based on the responses by the RBI, SEBI, we will be updating it,” said another of the officials cited above. “We have covered a bit of ground … A few things are very clear -- that (its) use case as a currency is the weakest and it has so many problems associated with that. As far as crypto assets are concerned, there are risks that assets get into the financial system and no single country can control these risks on its own,” said the second official.

Queries emailed to the spokespersons of World Bank and the ministry of finance on Monday remained unanswered till press time.

New Delhi is also pressing for global cooperation or understanding on treatment of cryptocurrencies at various forums including the G-20’s financial stability board (FSB) as a ban or regulation by a single country may prove to be ineffective given its digital nature.