Measures must be taken to curb the rise of cryptocurrencies in developing countries, said the United Nations, saying that these currencies constitute ” an unstable financial asset that can lead to social risks and costs« .
« Although private digital currencies have enriched some individuals and institutions, they are an unstable financial asset that can carry social risks and costs“, warned the United Nations body in charge of trade and development, the CNUCED, in three policy briefs released on Wednesday.
According to UNCTAD, their benefits of cryptocurrencies are for some overshadowed by the threats they pose to financial stability, domestic resource mobilization and the security of monetary systems.
Cryptocurrencies are an alternative form of payment. Transactions are done digitally through an encrypted technology, known as blockchain.
The use of cryptocurrencies has increased globally at an unprecedented rate during the COVID-19 pandemic, reinforcing a trend already underway. There are currently around 19,000.
In 2021, among the top 20 countries with the highest share of population owning cryptocurrencies, 15 were developing countries.
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Ukraine topped the list with 12.7%, followed by Russia and Venezuela – 11.9% and 10.3% respectively.
The first note from the UN agency titled “All that glitters is not gold. Not Regulating Cryptocurrencies Is Very Expensive” examines the reasons for the rapid adoption of cryptocurrencies in developing countries, including the facilitation of remittances and the inflation protection of fiat currencies.
But “recent shocks to digital currencies in the markets suggest that it is risky to hold cryptocurrencies. If a central bank steps in to protect their financial stability, then the problem becomes public,” UNCTAD said.
In addition, if cryptocurrencies continue to develop as a means of payment, even to unofficially replace national currencies, it is the “monetary sovereignty” of countries which might be jeopardized, warned the UN agency. .
UNCTAD’s second note focuses on the impact of cryptocurrencies on the stability and security of monetary systems, and for the stability of the financial architecture in general.
“A national public service digital payment system should address at least some of the reasons for the use of cryptocurrencies and limit the expansion of cryptocurrencies in developing countries,” UNCTAD noted.
The latest policy brief examines how cryptocurrencies have become a new channel for undermining domestic resource mobilization in developing countries, and warns of the dangers of doing “too little, too late”.
Indeed, while cryptocurrencies can facilitate remittances, UNCTAD has warned that they “might also enable fraud and encourage tax evasion through illicit financial flows – much like a haven fiscal, where it is difficult to identify who owns what”.
“Thus, crypto-currencies can also hamper the effectiveness of capital controls, a key instrument for developing countries to preserve their room for maneuver and their macroeconomic stability”, further noted the UN agency.
With MAP
