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News: Regulators across the globe have come up with various definitions of cryptocurrencies. But there is no consensus, even among major economies, on how to treat decentralised virtual currencies.
Considering the systemic risks that Crypto poses, countries should look to establish robust regulatory frameworks on cryptocurrency and educate investors accordingly.
What are the problems that countries are facing in classification of Cryptos?
– Most countries are unable to formulate a policy on virtual currencies as there are no precedents apart from bans, and they have been largely ineffective.
– Further, lawmakers globally are also having difficulties in understanding the technical aspects of crypto.
– Moreover, Classifying crypto as a commodity can tackle market and compliance risks, but not illicit activities, financial stability, systemic and capital flight risks.
– Also, making laws on paper and expecting full compliance is infeasible for a technology that makes it easy to bypass controls.
|Must Read: Cryptocurrency regulation in India: Ban or regulation – Explained, pointwise|
What is the global situation wrt regulation of Cryptos?
– El Salvador – the only country to legally recognise Bitcoin
– Nine countries, including China, have completely banned Crypto
– Forty-two countries like Bangladesh have banned it ‘implicitly’, which means banks are prohibited from dealing in crypto directly or indirectly and crypto exchanges are barred too.
What is the way forward?
IMF and WEF have noted that though crypto can help make cross-border payments efficient and improve financial inclusion, its operational and systemic risks means that regulation needs to be on the global agenda.
A recent WEF report had listed four ways in which countries can deal with crypto:
– ‘Wait & see’ like Brazil
– a balanced approach like Singapore and the EU
– Comprehensive regulation like Switzerland and Japan
– Restrictive methods like Turkey and Nigeria
Source: This post is based on the article “Why most countries are unable to take a firm decision on crypto” published in TOI on 11th Jan 2022.