The chief economist of the International monetary fund (IMF), Gita Gopinath has opined that with the emerging markets in perspective, cryptocurrencies are undoubtedly proving to be challenging. Therefore, strong regulation has become a must for the sector.
Gopinathan, nevertheless realizes that with the decentralized nature of cryptocurrencies in place, practical obstacles stand in the way of banning cryptocurrencies.
Gopinath’s comments coincide in timing with India’s government planning to set up a bill for cryptocurrency regulation. Nevertheless, as per the most recent developments, the Union Cabinet is not planning to take the bill into consideration.
The ongoing winter session is going to end on 23rd December. So, the odds of the bill being tabled in the parliament are close to negligible.
Gopinath has further made a statement at an event organized by the National Council of Applied Economic Research (NCAER). In the statement, she expressed that the monetary and fiscal policies of India will both need to be more accommodative over the next few quarters to come. One of the key reasons for the same is the ongoing uncertainty around COVID-19.
She perceives cryptocurrencies to be particularly challenging for emerging markets. Going by the initial appearances, cryptocurrencies have more attraction for emerging markets as compared to developed economies. Nevertheless, it has to be seen that emerging markets have capital flow controls and exchange rate controls. These are some factors that cryptocurrencies can impact.
It is noteworthy that Gopinath is slated to become the first deputy managing director of the IMF towards the beginning of the year.
Gopinath has stated that regulation is quintessential for the sector. In case people intend to use cryptocurrencies as an investment asset; they should be governed by the rules that are there in place for other investment classes.
Gopinath added that the ban of cryptocurrencies would bring with them some practical challenges. The need of the hour, in such circumstances, was a global policy on cryptocurrencies.
So, Gopinath has presented a strong case for cryptocurrency regulation. She has furthermore expressed that since the cryptocurrencies operate from offshore exchanges, banning them is going to be challenging. Gopinath has stated coordinated action, in the form of global policy, is the best way to go about regulating cryptocurrencies.
It is noteworthy that as of current, the use of cryptocurrencies in India is not barred by any bans or particular regulations.
Discussing the matter, Gopinath said that countries from around the world have tried out different things in the terms of banning or regulating cryptocurrencies and assets.
Gopinath has a firm opinion that since cryptocurrencies involve complex-border transactions; it is not going to be feasible for any nation to resolve the problems by themselves.
She expressed that since numerous crypto exchanges are offshore; they are subjected to regulations by a particular country. This makes it all the more important to come up with a global policy for cryptocurrencies.
For tabling and passage in the Winter Session, the government had listed the Cryptocurrency and Regulation of Official Digital Currency Bill 2021. The written listing stated that as per the Bill, all private cryptocurrencies would be banned in India. But as the events unfolded, the bill was not introduced then and was not listed in the monsoon sessions as well.
The media has received notifications from the desk of several top officials of the Indian government including TV Somnathan, the financial secretary. These developments shed light on two matters in particular. One is that as a legal tender, cryptocurrencies will not be allowed. Secondly, cryptocurrencies are likely to be permitted as tradable financial assets that are well-regulated.
Nirmala Sitharaman, the Finance Minister had earlier communicated to the Lok Sabha recently that the Bill stood in its conclusive stages of consultation to be considered by the Cabinet. Earlier, she had stated that it would be a ‘well-consulted’ Bill that the cabinet would put forth.
If we go by the conservative estimates shared by cryptocurrency exchanges, we see that nearly 20 million Indians have invested in the cryptocurrency sector in India. The cumulative worth of their investments stands at INR 15,000 – 20,000 crores. Numerous entities from the government have the opinion that since the cryptocurrency sector is rising fast, it needs to be regulated, and the regulations should be quickly set forth.
Discussing monetary and fiscal changes during the times of the pandemic, she stated that the recovery was divergent around markets. This included the Indian economy as well.
Even as the larger firms did well, it was the smaller and medium-sized firms that suffered. From the perspective of policies, this is challenging.
Gopinath has stated that in IMF’s collective opinion, India should be maintaining an accommodating fiscal policy for a few quarters. The process of unwinding should, then, be set into motion, gradually. It is similarly important for the monetary policy to be accommodative. Nevertheless, it is important for the Reserve Bank to keep a close watch on inflation, just as in the case of all other Central Banks.
Another important point made by Gopinathan was in relation to India’s monetary and fiscal policy. She stated that India’s core inflation stood to be slightly above 6%. So, under these circumstances, when a policy is created, it should be done while recognizing that the recovery from the pandemic has not taken place in its entirety.
It is noteworthy in this regard that for the month of November, Wholesale Price Index (WPI)-based inflation stood at 14.23%. It stood at a 12-year high, the maximum since April 2005. CPI inflation for the previous month, similarly, rose to a 3-month high of 4.91%.
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