The fourth G20 meeting of finance ministers and central bank governors, held recently at Marrakech, made some major advances in two areas: regulation for crypto assets and the reform of multilateral development banks (MDBs). The conference adopted the roadmap proposed in the synthesis paper on crypto assets put together by the IMF and the Financial Stability Board. This will be a game-changer as far as regulating these assets go.

Global regulators have so far been unable to control the transactions in virtual assets because of the ease with which the traders and users could shift their transactions to other countries. The IMF-FSB paper lays the ground for similar regulations across the globe, which can curb malpractices in this space. It puts out the broad policy framework to be used by the regulators of member-countries to frame their respective regulations, based on the extent of usage and risks in the crypto asset ecosystem in their jurisdiction. The roadmap laid out by the paper will ensure that the countries implement these rules in a time-bound manner. These regulations will give clarity to the crypto-trading platforms, companies and users regarding the legality of transactions and pave the way for greater innovation.

That said, Indian authorities could face some challenges. The regulator concerned has not yet been identified. If SEBI is to be the regulator for crypto-assets, the securities laws will have to be amended to include these assets as securities. Else, a new regulatory framework will have to be created for crypto-assets on the lines of the EU. A new regulator may have to be created. These systems must come up soon, as only after this can service providers be asked to register with the regulator and follow the rules. Given the high risk of money laundering and other criminal practices in using these assets, crypto service providers are required to follow strict guidelines for collecting, storing, safeguarding and reporting data. They also have to share this information with authorities when demanded.

Meanwhile, the governance reform of MDBs (IMF, World Bank in particular, apart from regional development banks) has assumed importance in view of two developments: the effects of climate change on countries of the ‘Global South’; and the fiscal distress and debt crisis brought upon by Covid on these countries. The Marrakech declaration emphasises the role of private capital in MDBs, to which there can be no objection per se. But private capital, which typically pursues higher and short-term returns, should not take the place of OECD governments’ commitments towards green finance. The declaration encourages “MDBs to enhance private capital mobilisation through supporting enabling conditions, innovative risk-sharing instruments and new partnerships...” The specifics on concessional finance need to be firmed up, with safeguards in place, when this group meets next April. Donors should be cognisant of priorities of the countries concerned.

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