UN Trade Organization Calls for Halting Cryptocurrency Rise in Developing Countries – Modern Diplomacy | Vette Leader

The UN trade and development organization UNCTAD has called for measures to curb cryptocurrencies in developing countries in three policy briefs published on Wednesday.

Although private digital currencies have rewarded some individuals and institutions, they are an unstable financial asset that can pose social risks and costs, the agency warned.

UNCTAD said their benefits for some are overshadowed by the threats they pose to financial stability, domestic resource mobilization and the security of monetary systems.

Rise of Crypto

Cryptocurrencies are an alternative form of payment. Transactions are conducted digitally using an encrypted technology known as blockchain.

The use of cryptocurrency increased worldwide an unprecedented rate during the COVID-19 pandemic and amplified a trend that was already underway. About 19,000 currently exist.

In 2021, developing countries accounted for 15 of the top 20 economies when it comes to the share of the population owning cryptocurrencies.

Ukraine topped the list with 12.7 percent, followed by Russia and Venezuela with 11.9 percent and 10.3 percent, respectively.

Not so golden

The first letter – All that glitters is not gold: The high cost of leaving cryptocurrencies unregulated – examines the reasons for the rapid adoption of cryptocurrencies in developing countries, including Ease of transfers and as Hedging against currency and inflation risks.

“Recent digital currency shocks in the market suggest that there are private risks in holding crypto, but if the central bank steps in to protect financial stability then it will The problem becomes publicsaid UNCTAD.

If cryptocurrencies continue to grow as a means of payment and even unofficially replace domestic currencies, the “monetary sovereignty” of countries could be threatened.

UNCTAD also highlighted the particular risk that stablecoins pose in developing countries with unmet demand for reserve currencies. As the name suggests, stablecoins are designed to maintain stability as their value is pegged to another currency, commodity or financial instrument.

“For some of these reasons, the International Monetary Fund has expressed the view that Cryptocurrencies pose risks as legal tender,‘ the agency said.

The second Policy Brief focuses on the impact of cryptocurrencies on the stability and security of monetary systems and on financial stability in general.

“It is argued that a domestic digital payments system that serves as a public good could fulfill at least some of the rationale for using crypto and limit the expansion of cryptocurrencies in developing countries,” UNCTAD said.

For example, monetary authorities could deploy a central bank digital currency or a fast retail payment system, although actions will depend on national capacities and needs.

However, UNCTAD has urged governments “to maintain the issuance and distribution of cash‘, given the risk of widening the digital divide in developed countries.

Fear of tax evasion

The final policy brief discusses how cryptocurrencies have become a new channel for cryptocurrencies Undermining domestic resource mobilization in developing countries and warns of the danger of acting too little and too late.

While cryptocurrencies can facilitate remittances, UNCTAD warned against it they can also enable tax evasion and avoidance through illicit financial flows – similar to a tax haven where ownership is not easily identifiable.

“In this way, cryptocurrencies can also limit the effectiveness of capital controls, a key tool for developing countries to maintain their policy space and macroeconomic stability,” the agency added.

curb crypto

UNCTAD has outlined several measures aimed at halting the expansion of cryptocurrencies in developing countries.

The agency called on authorities to regulate crypto exchanges, digital wallets and decentralized finance to ensure comprehensive financial regulation of cryptocurrencies.

Additionally, regulated financial institutions should be prohibited from holding cryptocurrencies, including stablecoins, or offering related products to their customers.

Advertising related to cryptocurrencies should also be regulated, as is the case with other risky financial assets.

Governments are recommended to provide a secure, reliable and affordable public payment system adapted to the digital age.

UNCTAD also advocates for global tax coordination regarding the tax treatment, regulation and information sharing of cryptocurrencies.

Additionally, capital controls should be redesigned to accommodate what the agency called “the decentralized, borderless, and pseudonymous characteristics of cryptocurrencies.”

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