The G7 nations recently congregated ahead of their summit to discuss the much anticipated regulatory developments for virtual digital assets (Crypto assets). This among other factors are on top of the agenda for the nations, as they swiftly work on their domestic policies for VDAs. The nations have collectively taken a call, much like the G20 group, to align their regulations with the standard set by the Financial Stability Board. This will ensure a synchronized approach towards the activity without much uncertainty or disagreement from any one or more participants, and ensure an efficient yet swift resolution to the objectives that have been set by the nations.
A key part of regulations for VDAs includes CBDC which many nations remain bullish about. However, some countries (not restricted to G7) are not on the path of rolling out their central bank currencies yet, even as other countries have started pilot runs. Market stability becomes a key point of concentration in this aspect as for CBDCs to really take off, countries need to have a transparent ledger of all credit and debit transactions between their key institutions and authorized businesses using central bank currencies. Not all G20 nations are close to attaining a level playing field when it comes to countries creating their central bank digital currencies, or building capacities for adoption of the same among the public. This needs to be addressed by G20 nations if cross border transactions are to be eased.
Much like India, the United States, France, Japan, Germany, Italy, Canada and the United Kingdom, have highlighted their focus on global cooperation in Crypto regulation. Their priority has been an open dialogue to assess any unprecedented risk associated with Crypto that may spill over to the TradFi ecosystem and affect more stakeholders than anticipated. After the Crypto market collapse of 2022, these dialogues have become more pertinent on the sidelines of domestic policy developments. Though countries in this league have had different approaches towards VDAs, with the USA being perceived as stringent, non-innovative, whereas EU and UK being termed efficient for their steadfast approach in drafting regulations, they have not deterred from collaborating with others wrt consumer protection, and prevention of illicit activities using VDAs.
A key point to note here is that all countries which are a part of the G7 group, are also present in the G20 group which India presides over this year. Their regulations are largely influenced by benchmarks set by the IMF, FSB and BIS, as India has announced recently. But when it comes to building a cooperative framework, besides aligning policies with that of global financial institutions, nations will also consult each other on matters which pertain to risk containment, prevention of money laundering, consumer protection, etc and most likely set up common ground for all operators.
With respect to organizations operating in VDAs, it will be key to set these rules, taking a cue from how G7 nations have approached it so far. This can include policies for the purpose of transparency in taxation, avoiding double taxation for users, and building a system of trust among nations when it comes to assessment of VDA transactions. While some nations such as the US are demotivating businesses to operate in the region and seek primary settlement elsewhere, there are nations like Canada, EU countries which are rewarding capacity building, and more uniformity in digital asset operations. The G20 nations would do well to select the best outcomes from the regulations of these nations individually, as well as their approach as the G7 group. Since India is heading towards this crucial milestone in the history of Crypto assets, there are several expectations that would have to be met, keeping user welfare as priority, followed by lawmakers, and other stakeholders.
And finally, innovation in emerging technologies such as Crypto becomes as important for G20 nations as they are for G7 nations. The countries are keen on embracing artificial intelligence, banking on its recent popularity, and plans to integrate it in the public sector. This means that it won’t be long before they extend the use of AI in VDA transactions, something that private players are already exploring with the success of ChatGPT. A regulatory approach based on artificial intelligence which will set the norms for a trustless ecosystem that Web3 aims for, is certainly an utopian situation. It remains to be seen whether India champions these approaches for its domestic as well as collaborative regulations with other countries or it takes a different course to set new standards for this robust industry.