“While private digital currencies have enriched some people and institutions, they represent a volatile financial asset that may entail social risks and costs,” warned the United Nations body responsible for trade and development, UNCTAD, in three guidance notes published by in this Wednesday.
Measures need to be taken to curb the growth of cryptocurrencies in developing countries, the United Nations said, given that these currencies are “an unstable financial asset that may entail social risks and costs.” “While private digital currencies have enriched some people and institutions, they represent a volatile financial asset that may entail social risks and costs,” warned the United Nations body responsible for trade and development, UNCTAD, in three guidance notes published by in this Wednesday. According to Unctad, the benefits of cryptocurrencies for some are 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 carried out digitally using an encrypted technology known as blockchain. The use of cryptocurrencies around the world has grown at an unprecedented pace during the Covid-19 pandemic, reinforcing an already emerging trend. There are currently about 19,000 of them. In 2021, of the 20 countries with the largest share of the population owning cryptocurrencies, 15 were developing countries. Ukraine topped the list with 12.7%, followed by Russia and Venezuela with 11.9% and 10.3% respectively. The first note of the UN agency entitled “Not all that glitters is gold. Not Regulating Cryptocurrencies Is Very Costly” explores the reasons for the rapid adoption of cryptocurrencies in developing countries, including facilitating money transfers and protecting fiat currencies from inflation. But “the recent turmoil of digital currencies in the markets suggests that holding cryptocurrencies is risky. If the central bank intervenes to protect their financial stability, then the problem becomes public,” UNCTAD said. In addition, if cryptocurrencies continue to develop as a means of payment or even unofficially replace national currencies, then the “monetary sovereignty” of countries may be at risk, the UN agency warned.
The second note from Cnuced is devoted to the impact of cryptocurrencies on the stability and security of monetary systems, as well as on the stability of the financial architecture in general. “A national digital payment system for public services should address at least some of the reasons for the use of cryptocurrencies and limit the spread of cryptocurrencies in developing countries,” UNCTAD noted. The latest policy brief examines how cryptocurrencies have become a new channel to undermine domestic resource mobilization in developing countries and warns of the dangers of taking action “too little too late.” Indeed, while cryptocurrencies may facilitate remittances, UNCTAD has warned that they “may also facilitate fraud and promote tax evasion through illicit financial flows – much like safe haven taxation where it is difficult to determine who owns what.” “Thus, cryptocurrencies may also impede the effectiveness of capital controls, a key tool for developing countries to maintain room for maneuver and their macroeconomic stability,” the UN agency further notes.