EIU’s Swarup Gupta on the need for comprehensive global crypto regulation
At a time when cryptocurrency or digital endorsements have caught the fancy of the world, many countries have gone ahead and issued their own Digital Bank Currency (CBDC). According to a recent report by the Atlantic Council, an independent organization based in Washington, DC, up to March 2022, 87 countries have considered issuing a CDBC. Of this, nine countries, including the Bahamas, Nigeria, as well as seven countries in the Eastern Caribbean Union, have already rolled out their own. What is missing, however, is a regulation that can provide a flexible way of transacting, also across national borders. Swarup Gupta, Director and Head of Financial Services, ESG, Economist Intelligence (The EIU), talks to FE Digital Currency about how the introduction of comprehensive global crypto regulation could address the resilience of financial firms such as banks in developing countries. (Edited excerpts)
Is it a false fear that digital currencies are interfering with today’s banking system?
Most digital currencies, with the notable exception of China’s eYuan, are designed to be minimally invasive from the outset. This will ensure that they will have a minimal impact on the commercial banking system. Some of them, such as the digital ruble, can only be used for special purposes on their own, and even in developing countries, the primary motivation for the introduction of central bank digital currencies (CBDCs) is financial inclusion, so there is no intention to disrupt the existing network of commercial banks.
Is there a need for comprehensive global crypto regulation?
We need comprehensive global crypto regulation to eliminate the possibility of regulatory arbitrage. However, it is unlikely that this will happen in the short term, even if calls for such globally valid laws come from the United States. What is likely to be visible is the coordination of existing international legislation, particularly those aimed at economic crime, and the strict enforcement of these existing laws. However, large variations are likely to be visible on the cryptocurrency tax regulation front, with those countries positioning themselves as crypto havens likely to pedal on this front. On the other hand, governments that take a dim view of the sector, such as India, are likely to impose onerous taxes on the industry.
What will the impact on the level of cash available in the market?
Cash in circulation declined worldwide following the Covid-19 pandemic, and in some emerging countries more than 50% of payments have now gone digital. The infrastructure was in place in many cases, especially in those countries with strong digital commons like India, and the Covid-19 pandemic provided the necessary impetus.
How Central Bank Digital Currency (CBDC) Will Play a Main Role in Capital Control?
The introduction of a CBDC alone cannot ensure strict capital controls. Better regulation of the blockchain industry, including crypto, non-fungible tokens (NFT), games for money, and other varieties, alone can deter and prevent money laundering and other forms of financial crime via the crypto route.
Also read: Digital currencies in governance: the balance between privacy and transparency
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