The United Nation’s Conference on Trade and Development (UNCTAD) has released three policy briefs on the dangers of cryptocurrency in light of the rising use of digital assets in developing countries.
UNCTAD states that there is a rapid uptake of crypto in the top economies of 2021 , with Ukraine, Russia, and Venezuela holding the largest percentage of their populations owning digital currency, at 12.7%, 11.9%, and 10.3% respectively.
Along with the three briefs that detail the instability of digital assets for both developing and advanced economies, UNCTAD has also outlined actions to directly control the development of crypto.
The first brief, cleverly titled ‘All That Glitters is Not Gold: The High Cost of Leaving Cryptocurrencies Unregulated’ discusses reasons for rapid growth of crypto in developing countries, which are that digital assets allow users to leverage remittance and protect their assets from currency inflation. As a result of this, crypto begins to pose threats to the monetary sovereignty of these nations.
“In developing countries with unmet demand for reserve currencies, stablecoins pose particular risks. For some of these reasons, the International Monetary Fund has expressed the view that cryptocurrencies pose risks as legal tender,” said UNCTAD.
The personal risk involved in crypto could become a public risk if its use surpasses that of local currency, which will require banks to step in to protect financial stability.
The second public policy brief examines the financial stability and security risks posed by digital assets in an increasing digital economy. Though governmentally regulated digital assets may improve payment systems and allow for more stability, UNCTAD encourages authorities to maintain the cash issuance due to the divide in digital capabilities in various countries.
The final brief released by the trading body details how cryptocurrencies could “undermine domestic resource mobilisation in developing countries.” Digital assets can enable fraud and tax evasion through illegal remittances, which could impact the capital controls that preserve stability and policy spaces for developing economies.
To limit the expansion of cryptocurrencies, UNCTAD has listed new policy actions that include restricting financial institutions from holding or offering cryptocurrencies, rolling out regulation for digital assets, crypto exchanges, digital wallet, and centralised finance, and banning crypto and high-risk asset advertising.
The trading body urges authorities to offer affordable and efficient public payment systems appropriate for the digital era, implement global tax coordination concerning crypto tax and regulation, and restructure capital controls to monitor all aspects of digital currencies.
This move in controlling crypto follows the UK Parliamentary enquiry into rolling out more regulation on crypto sector earlier this month.