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India Tops On Crypto Adoption

Last updated on: December 23, 2023 12:01 IST

'India's emergence as a top crypto market comes despite a regulatory and tax environment that can be challenging for the industry to navigate.'

Photograph: Edgar Su/Reuters

International Monetary Fund Managing Director Kristalina Georgieva says cryptocurrency (crypto) asset adoption is high in countries like India, and the challenge is that high crypto asset adoption could undermine macrofinancial stability.

Speaking at an international conference on digital money in Seoul last week, Georgieva mentioned that crypto assets can undermine monetary policy transmission of changing interest rates.

They could also circumvent capital flow management measures, such as limits on foreign currency holdings, and undermine fiscal sustainability if tax collection becomes volatile or more difficult to enforce.

'Crypto asset adoption is high, especially in emerging market economies like India, Nigeria, and Vietnam, according to Chainalysis, though data is scarce,' the IMF MD stated, adding, 'In Brazil, for every 100 reals spent on foreign securities, 25 go into crypto assets, according to ongoing research by IMF staff.'

'The challenge is that high crypto asset adoption could undermine macrofinancial stability,' she added.

Blockchain data analytics company Chainalysis, in a report published in October, ranked India at the top based on global crypto adoption, relying on indicators such as raw transaction volume, purchasing power, and the population of countries to measure grassroots adoption of crypto assets.

'India's emergence as a top crypto market comes despite a regulatory and tax environment that can be challenging for the industry to navigate,' it said.

In the past two years, Indian regulatory agencies have provided more clarity on many issues, such as announcing that money laundering rules will apply to crypto asset transactions.

India imposes a 30 per cent tax on income from the transfer of crypto assets and a 1 per cent tax deducted at source (TDS) by crypto platforms.

'While every exchange operating in the country is required to collect TDS taxes from Indian users, many international exchanges aren't doing so effectively, which may be drawing Indian users to them as opposed to exchanges focused primarily on India,' the Chainalysis report added.

After discussions with member countries, the IMF and the Financial Stability Board (FSB) published a synthesis paper last September offering guidance on rules for crypto assets and arguing against a blanket ban on activities linked to crypto assets, suggesting that such a move could be costly and technically challenging to enforce.

Georgieva said the IMF's goal is to make a more efficient, interoperable, and accessible financial system by providing rules to avoid the risks of crypto and infrastructure by leveraging some of its technologies.

'Among the main elements (of the IMF-FSB synthesis paper): Do not make crypto assets legal tender or official currencies.

'Clarify and consistently apply laws, standards, and regulations, including those for anti-money laundering and financing terrorism.

'Establish clear tax rules. Provide a solid legal foundation with a clear classification of crypto assets.

'And coordinate policies globally to avoid regulatory arbitrage since crypto asset providers can relocate at the click of a button,' Georgieva added.

The IMF chief said countries are implementing this guidance -- turning it into legislation, training supervisors and overseers, and enforcing compliance.

'These rules are not meant to return us to a pre-crypto world or to squash innovation. Not all crypto was tainted by fraud, just like the Wild West was not only about crooks, despite their legendary exploits,' she said.

Reserve Bank of India Governor Shaktikanta Das has been stressing the need for an outright ban on crypto assets, holding that they lack the underlying value of even a tulip, in reference to a speculative bubble that gripped Holland in the 17th century.

Following the adoption of a road map on crypto assets in the synthesis paper by Group of Twenty finance ministers and central bank governors at a meeting in Marrakech in October, the domestic crypto industry had hoped for the government to work towards a consensus on regulating crypto assets.

However, Das later in October said that the central bank's stance on banning crypto assets remained unchanged despite a global trend towards regulating them.

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Asit Ranjan Mishra
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