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The International Monetary Fund (IMF) recently flagged several risks over allowing the use of cryptocurrencies as legal tender. The fund is currently helping India draft a comprehensive crypto policy.
India is set to enforce a 30% capital gains tax on the space from April. But the country still lacks broader policies regulating the use of crypto assets. Indian financial officials are in talks with various entities, including the IMF and the World Bank, to draft policy on the space.
Crypto use in India has soared over the past year, with at least 10% of the population now engaging in trade. The country was ranked second on blockchain data firm Chainalysis’ 2021 global crypto adoption index.
IMF sees significant risk in crypto
In a statement to Indian publication Mint, the IMF mission chief for India, Nada Choueiri said that crypto assets posed significant risks to financial stability. Choueiri cited potential in the space for money laundering and terrorist financing, and that crypto systems were also facilitative to frauds and cyberattacks.
The fund is also in discussions with other countries to help draft uniform crypto regulation across the globe.
But the IMF has been cautious in its approach to crypto. In a 2021 blog post, the fund had warned of several destabilizing risks from the space. It said consumers were extremely vulnerable to crypto scams, and that the lack of regulatory oversight made the space difficult to safely navigate.
The (pseudo) anonymity of crypto assets creates data gaps for regulators and can open unwanted doors for money laundering, as well as terrorist financing.
-IMF analysts wrote
Recently, the IMF reached a debt restructuring deal with Argentina which includes a clause to discourage the adoption of crypto.
India toughens its stance on crypto
But while crypto adoption has soared in India, the government has sought to curb its use over the potential for illegal activities in the space.
India’s upper house recently voted in favour of a law that will impose a 30% capital gains tax- the highest bracket in the country- on crypto. The bill, which kicks in from April 1, will also tax any crypto transaction 1%. The increased taxation measures are aimed at dissuading trade in the space.
The Indian government will now disallow crypto miners from claiming tax deductions on their operations. Traders can also no longer offset crypto-related losses against gains on other tokens.