Economy

Cryptocurrency prohibition poses problems, according to IMF chief economist Gita Gopinath

Gopinath’s comments come as the government prepares to introduce legislation to regulate cryptocurrency.

The International Monetary Fund’s (IMF) top economist, Gita Gopinath, stated on Wednesday that cryptocurrencies are proving to be a burden for emerging nations and that the sector requires rigorous regulation.

She did remark, though, that prohibiting cryptocurrencies would be difficult due to their decentralised structure.

Gopinath’s comments come as the government prepares to introduce legislation to regulate cryptocurrency. The Union Cabinet, however, did not take up the Bill for discussion on Wednesday, according to reports. It looks improbable that it will be submitted in Parliament before the end of the current Winter Session on December 23.

Gita Gopinath

Given the lingering uncertainty around Covid-19, Gopinath believes India’s fiscal and monetary policy will have to be flexible in the coming months.

“I feel that cryptocurrencies present emerging markets with a unique challenge.” Emerging markets appear to be more interested in cryptocurrencies than developed economies. “However, emerging markets have exchange rate and capital flow regulations, and cryptocurrencies could have an impact on that,” said Gopinath, who will be the IMF’s first deputy managing director early next year.

“This industry necessitates a lot of control.” If this is used as an investment asset, Gopinath feels that the same laws that apply to other types of investments should also apply here.

She went on to argue that outlawing cryptocurrencies would be difficult to enforce and that a worldwide cryptocurrency strategy was urgently needed.

During the Winter Session, the government planned to introduce and pass the Cryptocurrency and Regulation of Official Digital Currency Bill 2021. While the initial description said that the Bill would ban all private cryptocurrencies in India, it was later explained that the descriptor was carried over from the previous Parliamentary Budget Session’s entry. At the time, the measure had not been introduced, and it was not expected to be heard during the Monsoon Session.

Cryptocurrencies will not be recognised as legal money, according to various officials, including Finance Secretary TV Somanathan. However, they may be permitted as regulated tradable financial assets.

Finance Minister Nirmala Sitharaman told the Lok Sabha earlier this week that the Bill was in the final stages of consultation before being considered by the Cabinet. She had earlier announced that the Centre would introduce a “well-consulted” Bill.

Approximately 20 million Indians own bitcoin investments worth Rs 15,000-20,000 crore, according to conservative estimates from cryptocurrency exchanges. Given the sector’s rapid growth, many in government believe it demands quick regulation.

Gopinath spoke about fiscal and monetary problems at Covid-19, claiming that market recovery, including the Indian economy, was diverging. “Bigger corporations are doing well, while small and medium-sized businesses are having a difficult time. “From a policy standpoint, this is a challenge,” she said.

“In our judgement, India should keep its fiscal policy accommodative for a few quarters before gradually unwinding.” Similarly, Gopinath believes that monetary policy should be accommodating, but that the Reserve Bank, like all other central banks, must keep a watchful eye on inflation.

In November, inflation as measured by the Wholesale Price Index (WPI) hit a 12-year high of 14.23%, the highest since April 2005. CPI inflation touched a three-month high of 4.91 percent last month.

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