UN calls for comprehensive regulation of crypto in developing countries
The United Nations Conference on Trade and Development (UNCTAD) has outlined the “risks and costs” of cryptocurrencies for developing countries in three policy briefs, suggesting ways to limit their expansion.
UNCTAD, which promotes the interests of developing states in global trade, details how cryptography is a potential threat to financial stability, the allocation of capital and resources, and the security of monetary systems in developing countries.
Citizens of emerging countries, such as Kenya, Venezuela and India, are disproportionately more likely to own digital currency, according to UNCTAD, with 15 of the top 20 countries with the highest share of digital asset ownership being emerging countries.
It calls on developing countries to curb crypto advertising and introduce strong regulation of crypto exchanges, digital wallets, and other aspects of decentralized finance. He also suggests banning financial institutions from holding cryptos.
It says developing countries should also rethink their capital controls to account for the “decentralized, borderless and pseudonymous” nature of crypto.
At the international level, UNCTAD recommends establishing a global tax framework regarding crypto-tax, regulation and information sharing.
The organization says cryptoization, the process by which crypto unofficially replaces national currencies, can “jeopardize the monetary sovereignty of countries.”
The recent volatility in the digital asset space shows that while there are private risks associated with holding crypto, if a central bank takes action to protect financial stability, these “currency shocks” can be exacerbated. “Then the problem becomes public,” says UNCTAD.
Stablecoins also present “particular risks” for developing countries with unmet demand for reserve currencies, according to the organization.
“For some of these reasons, the International Monetary Fund has expressed the view that cryptocurrencies pose risks as legal tender.”
UNCTAD also suggests setting up a national digital payment system to address the “public good” aspect of crypto while limiting its expansion in developing countries.
Monetary authorities could also provide a central bank digital currency (CBDC) or fast retail payment system, according to UNCTAD, while urging authorities to maintain the issuance and distribution of cash.
Finally, the UN body says cryptocurrencies can limit the effectiveness of capital controls, “a key instrument for developing countries” to manage politics and economic stability.
While cryptocurrencies can facilitate remittances, they can also enable tax evasion and evasion through illicit flows, according to UNCTAD.