India, which is currently holding the G20 Presidency, has tasked the International Monetary Fund and the Financial Stability Board (FSB) with jointly preparing a technical paper on crypto assets.

The paper could be used to formulate a coordinated and comprehensive policy to regulate crypto assets.

The G20 will draw up a universally acceptable international framework to regulate crypto assets and said that only a central bank backed monetary unit would qualify as a currency.

“To complement the ongoing dialogue on the need for a policy framework, the Indian Presidency has proposed a joint technical paper by the International Monetary Fund (IMF) and the FSB, which would synthesise the macroeconomic and regulatory perspectives of crypto assets,” according to an official statement.

The joint paper would be presented at the finance ministers and central bank governors meeting in October 2023, it said.

The IMF’s discussion paper, the policy seminar and the joint IMF-FSB paper are expected to integrate the policy questions pertaining to macro-financial and regulatory perspectives of crypto assets and facilitate a global consensus on a well-coordinated and comprehensive policy approach to crypto assets, as per the statement.

There’s almost a clear understanding that anything other than the one backed by the central bank is not a currency, said India’s finance minister Nirmala Sitharaman.“We are glad that India’s position is getting acknowledgement from others,” Sitharaman said.

India was the first major economy to raise the dangers posed by crypto currencies. The Reserve Bank of India (RBI) had warned banks not to entertain transactions involving crypto and cautioned that it could be used for terror funding and eroding financial stability.

“There is wide recognition and acceptance of the fact that crypto currency, or asset, or whatever name you call it, is a risk to financial stability, monetary systems and cyber security,” said RBI governor Shaktikanta Das. “There will be a synthesis paper on this whole issue of crypto. That will form the basis to develop an international architecture.”

To be sure, some of the technologies involved could be useful tools for developing the financial services sector, he said.

“There is now wide acceptance about risks involved,” said Das. “There was an agreement that this issue has to be dealt with the overall objective of maintaining financial stability.’’

Minister Sitharaman said the Canadian central bank governor said that cryptos should “not be given regulatory seal of approval.”

There have been calls for a global policy framework for crypto assets with various jurisdictions following different approaches in its treatment.

“We have to differentiate between central bank digital currencies that are backed by the state and stable coins, and crypto assets that are privately issued,” IMF managing director Kristalina Georgieva said. “There has to be a very strong push for regulation… if regulation fails, if you’re slow to do it, then we should not take off the table banning those assets, because they may create financial stability risk.”

The global standard-setting bodies such as the Financial Action Task Force (FATF), FSB, Committee on Payments and Market Infrastructures (CPMI), International Organization of Securities Commissions (IOSCO) and Basel Committee on Banking Supervision (BCBS) have been coordinating the regulatory agenda, while working within their respective institutional mandates, according to the official statement.

India hopes to broaden the G20 discussion on crypto assets beyond financial integrity concerns and capture the macroeconomic implications and widespread crypto adoption in the economy, it said.

This, it added, will require a data-based and informed approach to the global challenges and opportunities of crypto assets, allowing G20 members to shape a coordinated and comprehensive policy response.

To inform policymakers of the broader macroeconomic and financial stability implications of crypto assets, the Indian Presidency requested the IMF to prepare a discussion paper on the topic for the second G20 Finance and Central Bank Deputies Meeting held in Bengaluru on February 23.

“During the said meeting, a seminar titled ‘Policy Perspectives: Debating the Road to Policy Consensus on Crypto Assets’ was held, as part of the Presidency’s efforts to broaden the dialogue around crypto assets,” it said.

IMF speaker Tommaso Mancini-Griffoli presented the discussion paper during the event, highlighting the consequences of crypto adoption on the internal and external stability of a country’s economy as well as on the structure of its financial system.

He also flagged the global information gaps pertaining to the crypto asset universe and the need to build a deeper understanding of the interlinkages, opportunities and risks pertaining to crypto assets under the aegis of the G20.

The discussions covered a wide range of topics, including the need for a common taxonomy and a systematic classification of the crypto asset universe, benefits and risks of crypto assets, macroeconomic policy questions that needed to be evaluated further, and financial stability issues and regulatory responses.