The United Nations Conference on Trade and Development (UNCTAD) has called on developing countries to prevent the widespread use of cryptocurrencies. It has suggested a set of policy actions to curb the expansion of digital assets.
The intergovernmental group highlighted that cryptocurrencies as a widespread means of payment, means that monetary sovereignty of countries could be jeopardized. UNCTAD noted that the global use of cryptocurrencies has increased exponentially during the COVID-19 pandemic, including in developing countries.
It says that while private digital currencies have rewarded some, and facilitated remittances, it’s an unstable financial asset that can bring social risks and costs. The UNCTAD said if digital assets become widespread as means of payment, and even replace domestic currencies unofficially, it could very much endanger the monetary sovereignty of countries. It said cryptocurrencies can enable tax evasion and avoidance through illicit flows, like a tax haven where ownership is not easily identifiable.
The organization outlined that cryptocurrencies can curb the effectiveness of capital controls, which is a key instrument for developing countries to preserve their policy space and macroeconomic stability. UNCTAD has released three related policy briefs, whereby one explains the high cost of leaving cryptocurrencies unregulated, the second one highlights public payment systems in response to the financial stability and security risks of cryptocurrencies, and the third paper discusses how digital assets can undermine domestic resource mobilization in developing countries.
UNCTAD urges the respective authorities to take action to curb the expansion of cryptocurrencies in developing countries. It calls to ensure a comprehensive financial regulation of cryptocurrencies through regulating crypto exchanges, digital wallets, and DeFi. The organization also wants the banning of regulated financial institutions from holding cryptocurrencies, including stablecoins, or giving related products to clients. Furthermore, it wants authorities to restrict advertisements related to cryptocurrencies, and provide a safe, reliable, and affordable public payment system for the digital era.