NEW DELHI: International Monetary Fund (IMF) chief economist Gita Gopinath on Wednesday said that cryptocurrencies pose a challenge to emerging economies that have checks on capital flows and foreign exchange and called for a co-ordinated global action for regulating them, while suggesting that a ban may be tough to impose.
Calling upon countries to move quickly, Gopinath – IMF’s first deputy managing director-designate – said a ban may be tough to impose from a practical point of view. “A lot of exchanges are offshore and not subject to the regulation (of a country)… We need a global compact as no individual country can do it… we need it urgently,” she said at a lecture organised by think-tank National Council for Applied Economic Research (NCAER).
She said there was a need to regulate crypto assets and, based on the stand taken by each country, regulations should be developed that impose rules similar to those governing investments or payments with capital buffers and other norms for financial institutions investing in the instrument.
The government is working on a legislation on cryptocurrencies, which was scheduled to be introduced during the current session of Parliament. The debate on whether to regulate it or ban it has split the government, with the RBI arguing against treating them as an asset. Gopinath pointed to greater adoption of cryptocurrency in emerging markets.
While pointing to the global economic recovery since the Covid pandemic, she said the growth momentum had been impacted during the second half of 2021.
Gopinath said the Indian government should maintain an accommodative fiscal stance for a few more quarters and unwind it gradually. She was also of the view that the monetary policy should remain accommodative, although like other central banks, the RBI too needed to keep a close eye on inflation.
The Harvard University professor suggested that several countries, including India, were witnessing a K-shaped recovery, indicating various segments of the economy were recovering at different speeds and pointed to a more rapid turnaround of large companies than SMEs and that several people were yet to return to the market.
Amid an expected tightening of monetary policy in advanced countries as well as withdrawal of fiscal stimulus in several countries, along with rising challenge from inflation, Gopinath suggested that central banks need to be clear in their communication in case of a change in monetary policy stance. She also warned of limited fiscal space available with countries to deal with possible disruptions due to a spike in infections.
Gopinath called for increased focus on creating infrastructure, particularly related to health, and said developing nations needed to redouble efforts on education as children in these countries had been hit due to a shift to virtual classrooms.