“The risk I’m most concerned about in the non-governmental realm is the non-hosted wallets through which all this (crypto) operation takes place across the globe. So regulation can’t be done by a single country on its territory. through an effective method. Technology has no solution that would be acceptable to various sovereigns,” Union Finance Minister Nirmala Sitharaman told a roundtable hosted by the Monetary Fund. International (IMF) on April 18.
The discussion saw the participation of Roberto Campos Neto, President of the Central Bank of Brazil; Kristalina Georgieva, Managing Director, IMF; and Ravi Menon, Managing Director, Monetary Authority of Singapore (MAS). It was moderated by Gillian Tett, Editorial Board Chair and Editor-in-Chief (US) of the Financial Times.
She advocated for a unified approach to regulation to keep tabs on money laundering issues.
“I’m stressing that a lot because I think the biggest risk for any country will be the money laundering aspect and also the currency aspect of being used to finance terrorism.” —Sitharaman
Finance Minister Nirmala Sitharaman’s comments suggest that the Indian government continues to remain circumspect about the benefits of cryptocurrencies. They also indicate that India may seek a collective response to the issue of crypto regulation.
What else did the panelists discuss?
“I needed a written record”
Asked about India’s decision to tax crypto assets, Sitharaman explained that the government was unsure whether the FATF money trail was being followed in these transactions. She said the government’s decision to tax crypto was also motivated by the fact that there was no regulatory mechanism regarding crypto assets.
“We will be able to know who is buying it and who is selling it, and one percent (TDS) is not an additional tax beyond 30 percent. We try to make sure that we keep track and that these (transactions) comply with anti-money laundering rules and do not inadvertently end up funding terrorist activities,” she reiterated.
She acknowledged that crypto activities were gaining momentum and clarified that the government had not legitimized them.
“We do not recognize crypto assets as currency because the currency is backed by the central bank of the country or the government of the country. So it hasn’t happened in our country yet, and it’s going to happen this year,” Sitharaman revealed.
IMF advises against using crypto assets as currency
IMF’s Kristalina Georgieva said, “Crypto assets that are quite volatile can hardly be deployed as currency, and we actually advise against adopting them as currency. But stablecoins have the potential to mediate between savers and those interested in investing in this new digital world.
She added that private digital money can try to do bad things like support crime or terrorism while highlighting some of the risks. “They can avoid taxation in a way that affects the public purse. Producing some of them like Bitcoin means using energy in massive amounts, which in some countries is already causing an energy supply gap,” she said.
Georgieva said the IMF is focusing on three issues:
- Interoperability: How can central bank digital currencies communicate with each other?
- Regulation: What does it mean to regulate privately issued stablecoins? How can regulation be agile and adaptable? “We have to recognize that disrupting is good but destructive is bad. We need to be able to track digital money to prevent destructive activity. It means knowing the wallets and having standards around how those wallets work,” she said.
- Risk of cyberattacks: How can we strengthen our ability to deal with these risks? “Also for smaller countries, there is a risk that they will lose their monetary sovereignty because digital cryptocurrencies from other countries’ central banks will take over,” Georgieva concluded.
“Intersection of SMS, payments and content”
Roberto Campos Neto said that regulation should be done with a forward-looking approach. “You want to make sure today’s competitiveness means tomorrow’s competitiveness, but when it’s not linear it’s harder to regulate.”
“We don’t know what financial intermediation will look like in four years. The real challenge is to identify trends and understand how central banks are responding to them. But in 2019, we are starting to see a fusion between SMS, payments and content. You see the verticalization of the sales process as content, checkout, and messaging help understand what people think of the data-intensive product. We started to see a race for data,” Neto said.
“When we talk about crypto assets, people focus too much on the asset itself. But beauty is the network that is created. The networks created with the protocols will change financial intermediation in the future,”
“Bigger than the wave of securitization”
Ravi Menon pointed out that cryptocurrencies are only a small part of the full potential of what a crypto asset economy could look like, or a tokenized economy where you tokenize assets.
“The real benefit is that hitherto non-monetizable assets, for example a farmer’s cows, a person’s ship or boat, art, all kinds of assets, valuables, which today can’t be monetized, can potentially be tokenized and put on the distributor ledger,” Menon said.
Menon said MAS is keeping a close eye on stablecoins. “They should be taken seriously. Stablecoins will become a feature in the world as long as their support is strong. In fact, stablecoins could challenge the currencies of many small or emerging market economies due to their widespread use,” Menon added.
Menon said that in a competition between public money and private money, public money has always won in history. “Private money tends to degrade over time,” he said.
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