The United Nations Conference on Trade and Development (UNCTAD) has called for the halt of cryptocurrency rising in developing countries.
It has issued three policy briefs that explore the risks and costs, including the threats cryptocurrency poses to financial stability, domestic resource mobilisation and the security of monetary systems.
The body added that while private digital currencies have rewarded some and enabled remittances, they are an unstable asset that bring social risks and costs, it said.
Its first policy is titled ‘All that glitters is not gold: The high cost of leaving cryptocurrencies unregulated’. This explores the reasons cryptocurrencies have been adopted so rapidly in developing countries, including their facilitation of remittances and a hedge against currency and inflation risks.
Recent digital currency shocks in the market indicate there are private risks to holding crypto, but if the central bank steps in to protect financial stability the problem becomes a public one, it said.
Additionally, if cryptos become a widespread method of payment and replace domestic currencies unofficially, which is known as cryptoisation, this could impact the monetary sovereignty of countries.
Finally, the policy states that developing countries with unmet demand for reserve currencies, stablecoins are a particular risk.
The UNCTAD second policy, ‘Public payment systems in the digital era: Responding to the financial stability and security-related risks of cryptocurrencies’, focuses on the implications cryptos have on the stability and security of monetary systems and financial stability.
It argues that a domestic digital payment system could fulfil some of the reasons cryptos are being used and limit its expansion.
The final policy, ‘The cost of doing too little too late: How cryptocurrencies can undermine domestic resource mobilization in developing countries’, discusses how cryptos have become a new channel to undermine domestic resource mobilisation in developing countries.
It states that while cryptos support remittances, they could also enable tax evasion and avoidance.
The UNCTAD offered some policy actions, including the implementation of new crypto regulation for crypto exchanges, digital wallets and decentralised finance services. It also suggested banning financial institutions from holding cryptos and stablecoins or offering related products to clients.
Other actions include restricting advertising of cryptos, building a safe and affordable public payment system, implementing global tax coordination and redesigning capital controls to account for decentralised, borderless and pseudonymous features of cryptocurrencies.
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