International Monetary Fund (IMF) chief economist Gita Gopinath said on Wednesday that cryptocurrencies were proving to be a challenge for emerging markets and that strong regulation was needed for the sector.
She, however, said there were practical obstacles to banning cryptocurrencies, given their decentralised nature.
Gopinath’s comments come at a time when the government is looking to bring a Bill on cryptocurrency regulation. It is learnt however, that the Union Cabinet on Wednesday did not take up the Bill for consideration. With the current Winter Session ending on December 23, the chances of it being tabled in Parliament seem remote.
Speaking at an event organised by National Council of Applied Economic Research (NCAER), Gopinath also said that India’s fiscal and monetary policies will both need to be accommodative for the next few quarters, given the continuing uncertainty around Covid-19.
“I think cryptocurrencies are a particular challenge for emerging markets. It would seem that cryptocurrencies are more attractive for emerging markets compared to developed economies. However, emerging markets have exchange rate controls, capital flow controls, and cryptocurrencies can impact that,†said Gopinath, who is slated to be the first deputy managing director of the IMF early next year.
“Regulation is absolutely important for this sector. If people are using this as an investment asset, then the rules which are there for other investment classes should apply here as well, Gopinath said.
She added, banning cryptocurrencies would pose practical challenges, and that a global policy on cryptocurrency was the need of the hour.
The government had listed the Cryptocurrency and Regulation of Official Digital Currency Bill 2021 for tabling and passage in the Winter Session. While the written listing had said the Bill would prohibit all private cryptocurrencies in India, it was later clarified that the descriptor had been carried over from the listing of the previous Budget Session of Parliament. The Bill had not been introduced then and was not listed for the Monsoon Session.
Various officials, including finance secretary TV Somanathan, have made two things clear: That cryptocurrencies will not be allowed as legal tender, and that they may be allowed as regulated tradable financial assets.
Finance minister Nirmala Sitharaman had informed the Lok Sabha earlier this week that the Bill was in final stages of consultation for the consideration by the Cabinet. She had earlier said that the Centre would bring a ‘well consulted’ Bill.
By conservative estimates from cryptocurrency exchanges, about 20 million Indians hold investments in the sector worth around Rs 15,000-20,000 crore. Many in the government believe that given the rapid rise of the sector, it needs regulation, and fast.
Speaking on fiscal and monetary challenges during Covid-19, Gopinath said recovery around markets, including the Indian economy, was divergent. “Larger companies are doing well, but the medium-sized and smaller firms are struggling. From a policy perspective, this is a challenge,†she said.
“Our view is that India should maintain an accommodating fiscal policy for a few quarters, and afterwards unwind, gradually. Similarly, monetary policy should be accommodative, but like all other central banks, the Reserve Bank needs to keep a close eye on inflation,†Gopinath said.
Wholesale Price Index (WPI)-based inflation for the month of November surged to a 12-year high of 14.23 per cent, the highest since April 2005. CPI inflation for last month rose to a three-month high of 4.91 per cent.
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