By Elton Gomes
On Saturday, all G20 member nations officially signed a joint declaration that acknowledges that “necessary reform” is required given the blistering pace of the “digitalization” of the global economy. A key part of this digitalisation is the use of cryptocurrencies, and all member nations, despite their individual economic policies, have agreed to a regulatory, instead of a laissez-faire, approach to the issue.
The decision was finalised at the G20 leaders’ summit held on December 1, 2018, in Buenos Aires, Argentina.
The participating finance ministers, central bank governors, and international organisation leaders stated that “international trade and investment are important engines of growth, productivity, innovation, job creation, and development”. They added that, in the face of global economic challenges, “this is our moment to take action to address structural growth impediments, rebuild buffers, reduce excessive global imbalances, and mitigate risks,” according to an official statement.
In the communiqué, the G20 has agreed to a regulatory approach for cryptorrencies, or crypto-assets, as they are referred to in the document. The approach is in line with the FATF (Financial Action Task Force) recommendations.
Section 25 of the official declaration reads: “We will regulate crypto-assets for anti-money laundering and countering the financing of terrorism in line with FATF standards and we will consider other responses as needed.”
It remains to be seen how these regulatory measures will be implemented because crytocurrencies, such as bitcoin, were intentionally designed to be fundamentally censorship-resistant, borderless, and politically neutral.
Wait … but what are cryptocurrencies?
Cryptocurrencies are a subset of digital currencies. Bitcoin is a particular form of cryptocurrency which was created in 2009 by a mysterious figure under the alias Satoshi Nakamoto.
Cryptocurrencies can be used to buy or sell items from people and companies who accept them as payment, but they do not exist as a physical currency. There are no actual coins or notes, and they exist online only.
There are two ways to earn bitcoins: by “mining”, or through trading and exchange. Bitcoin mining involves decrypting an encrypted mathematical problem which then yields a reward, in the form of a bitcoin or a fraction of it, for the “miner”.
The estimated amount of bitcoins distributed around the world is estimated to be worth 21 million, while bitcoins worth 4 million are still left to mine. This indicates that the future of bitcoin could soon be restricted to trading or exchange.
A record of each transaction is stored in a decentralised, computerised public ledger. Since each transaction all over the world is “chained” to this universal ledger, the technology is called a “blockchain”. This step ensures the integrity of the currency.
What are the FATF recommendations?
In its regulatory standards released on October 19, FATF emphasised that “virtual assets” (which refer to cryptocurrencies/crypto-assets) are different from the legal tender of a country, that is, fiat money, and hence should be treated as assets instead of currencies.
According to these recommendations, governments should ensure that virtual asset service providers are subjected to anti-money laundering (AML)/counter financial terrorism (CFT) regulations, such as conducting customer due diligence, which includes ongoing monitoring, record-keeping, and reporting of suspicious transactions.
The recommendations also called for all concerned government bodies to assess and understand the risks associated with virtual assets in their jurisdictions. Government bodies were also urged to apply risk-based AML/CFT regulations to virtual asset service providers and identify effective systems to conduct risk-based monitoring or supervision of virtual asset service providers.
Is the Indian government keen on cryptocurrencies?
In India, cryptocurrency-related petitions are still pending in the Supreme Court. An interministerial committee led by the department of economic affairs secretary Subhash Chandra Garg is looking into crypto regulations. The committee will have to follow FATF recommendations, if and when it decides to draft a cryptocurrency report.
As of now, India has disallowed all banks to entertain entities dealing with any type of cryptocurrency. The Indian government is not a big fan of cryptocurrencies, though it has said it might leverage blockchain. The State Bank of India (SBI), Axis Bank, HDFC Bank, ICICI Bank, and Yes Bank have taken strong action against crypto exchanges, either closing accounts or severely limiting functionality.
In India, blockchain implemented on a wide scale for banking and payment system could probably disrupt the system for some time. It is believed that blockchain technology implementation could take some time, and Indian consumers will have a lot of adjusting to do.
And what about the other G20 nations? Are they as reticent as India?
Argentina, despite being an important South American hub for cryptocurrencies, has never seen significant interest in the digital currency wave. The number of bitcoin users in Argentina is still small. However, Argentina has an edge in using cryptocurrencies for exchange because they can be used to buy everyday tangible assets.
Australia is one of the few countries that has actively started working on its own crytocurrency regulations, without looking to the rest of the world for precedents. The Australian government recently addressed exchange regulations with a mandatory law.
The Brazilian government sees potential in blockchain, and has made efforts in research and development of the new technology. The Brazilian central bank, Banco Central do Brasil, is ramping up its research and development efforts on blockchain technology.
The Canadian government has given the approval for its first ever blockchain-based Exchange Traded Fund. Additionally, the Canadian Securities Exchange (CSE) announced that they will soon launch a securities clearing and settlement platform based on the Ethereum (ETH) Blockchain, which will allow companies to raise capital with security tokens.
China has taken a hard stance against cryptocurrency, since it first instituted a nationwide ban on initial coin offerings. China then banned exchanges, trying to cut off the citizens from using and trading in digital currencies. A massive firewall was then raised to put the final nail in the cryptocurrency coffin.
France favours building a regulatory framework that can work universally for a currency that is used globally.
Germany also seems keen on going the French way, having stated previously that the only way to control cryptocurrencies would be for international cooperation.
The Indonesian Central Bank does not seem impressed with bitcoin. It ordered a ban on the use of the virtual currency as a method of payment in October last year. The bank was of the opinion that bitcoin does not represent a legal or recognised medium of exchange and payment in Indonesia.
Italy seems to have taken a shine to cryptocurrencies. It recently came forward with a decree that aims to classify the use of cryptocurrencies in the country, and to list “service providers related to digital currencies”.
A few years ago, Japan made headlines after it announced that bitcoin was a legal currency. However, its loose approach to regulation has forced regulators to step in. January’s hack of the Japanese-based crypto exchange Coincheck amounted to losses worth more than $534 million.
Now, Japanese exchanges are making efforts to alleviate the pains for the government who have been under pressure to protect their citizens.
Mexico is just one signature away from regulating cryptocurrency after a law setting out its position was passed in the lower house.
The Russian government is looking to regulate and control digital currencies to the point of banning access to decentralised exchanges, and is working on launching its own coin.
The Russian Association of Cryptocurrency and Blockchain (RACIB) has announced that the government’s long discussed idea of a state-issued cryptocurrency could be launched by mid-2019.
Keeping in mind Saudi Arabia’s strict approach to corruption and forms of money laundering, it seems that cryptocurrencies will be treated with suspicion.
South Africa has approached cryptocurrency with interest, and is looking to understand and analyse it before coming up with regulations. The country’s central bank has opened up a sandbox, where companies can operate in a regulatory safe space in order to assess the outcomes of blockchain and cryptocurrency solutions.
Reports from January indicated that South Korea would ban cryptocurrencies in February after the Ministry of Justice independently announced its plans of banning cryptocurrency trading. However, South Korea’s finance minister, in January, said that the government has no plans to shut down cryptocurrency trading. The current status remains unclear.
The Turkish have apparently been mulling over the idea of building their own cryptocurrency, similar to their G20 ally Russia, and Venezuela, which has Petro coin.
The Treasury Committee of the UK Parliament launched an inquiry into cryptocurrencies and their effect on UK investors and businesses in February. The inquiry was prompted by the rising global interest in cryptocurrencies, as well as the ongoing rise and fall of the crypto market since the beginning of this year.
The US has been trying to regulate cryptocurrencies as the Securities and Exchange Commission has stepped in heavily to monitor ICO. However, the Commodities Futures Trading Commission (CFTC) has indicated that there is no reason to harm cryptocurrencies.
The European Union
For the EU, the matter of regulating cryptocurrencies has not really emerged as a very important issue. The European Central Bank’s (ECB) Chair of the Supervisory Board Daniele Nouy said that although she had “no clue” whether new regulatory moves on crypto would emerge from Europe in the future, involvement of ECB-regulated banks in the sphere was “very, very low”.
Elton Gomes is a staff writer at Qrius