Economic Survey 2023: Unregulated Crypto a cause for concern, common approach necessary for regulation

The Economic Survey 2023 has strongly pitched for a common approach for regulation of private crypto currencies saying that unregulated crypto market pause challenges to financial systems globally.

“The fact that crypto is yet largely unregulated is a cause for concern globally, the economic survey showed,” the survey tabled in Parliament on January 31 said.

Monitoring and regulating cryptocurrencies have been tricky, and regulators across the globe find it challenging to keep track of the new and emerging issues in the fast-moving uncharted field, the survey showed.

Resistance from RBI

The RBI has been cautioning about high risks of crypto currencies and has even called for a ban of such assets citing its systemic risks.

On January 13, RBI Governor Shaktikanta Das said that crypto is poor gambling and can undermine the power of the central bank if allowed to grow unchecked.

“If crypto is allowed in India, RBI will lose control over monitoring transactions. Crypto, masquerading as a financial asset, is a completely misplaced argument," Das said at an event in Mumbai.

Also read: RBI Governor Shaktikanta Das: Crypto is poor gambling; shouldn't be allowed to grow

Das, in December 2022 said that the next financial crisis will be caused by private cryptocurrencies, if these assets are allowed to grow. Earlier in 2017, the Union Finance Ministry, along with RBI, had issued a warning that virtual currencies are not legal tender.

The apex bank has time and again from years, highlighted that legalised dangers with crypto which could possibly lead to massive financial problems.

In 2013, RBI issued a circular where it warned traders against the use of virtual currencies. It asked traders to stay away from cryptocurrency trading and warned about the risks associated with it.

Later in 2017, RBI and the finance ministry issued a warning that virtual currencies are not legal tender.

The regulator has constantly informed about the risks concerning trading and also thought of introducing a blanket ban on them in 2018.

In May 2022, when RBI announced its intent to launch an official digital currency, Governor Das said cryptocurrencies pose a serious threat to any financial system as they are not under its regulation.

Also read: Budget 2023: Expect some tighter regulations for the crypto sector, experts say

What does the Fed and other regulators say?

The Federal Reserve, Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC) on January 3 highlighted their concerns about crypto-asset risks to the banking system.

"The events of the past year have been marked by significant volatility and the exposure of vulnerabilities in the crypto-asset sector. These events highlight a number of key risks associated with crypto-assets and crypto-asset sector participants that banking organizations should be
aware of like legal uncertainties, frauds or scams among other risks," the statement said.

The economic survey, attributing to the fall of crypto exchange FTX, highlighted the vulnerabilities in the crypto ecosystem.

In order to set a system in place for regulating cryptocurrencies, the survey said that international institutions like the Organisation for Economic Co-operation and Development (OECD) and G20 are discussing a globally coordinated approach to regulating crypto assets.