In a series of policy briefs published on August 10th, the United Nations Conference on Trade and Development (UNCTAD) suggested limits on cryptocurrencies in developing countries.
Provided Policy Brief
According to UNCTAD, part of the UN Secretariat, private digital currencies worldwide make national regulatory measures difficult. While some people have benefited from digital currencies, they are still unstable financial assets that can also have adverse societal effects.
The risks and costs associated with cryptocurrencies, particularly the dangers they pose to financial stability, the mobilization of domestic resources, and the security of monetary systems, are covered in depth in three policy briefs published by UNCTAD.
Agency Claims Cryptocurrencies Pose Risks
As reported by UNCTAD, cryptocurrencies might reduce the effectiveness of capital controls, which are frequently used in developing nations to maintain macroeconomic stability.
While cryptocurrencies can make remittances easier, UNCTAD cautioned that they might also make it easier for people to evade taxes through illicit financial transactions, much like a tax haven where ownership is difficult to trace.
According to UNCTAD, stablecoins provide particular concerns in developing nations with a high demand for reserve currencies. The dangers that cryptocurrencies may pose as forms of legal money have also drawn the attention of the International Monetary Fund.
UNCTAD Suggests Regulating Crypto
UNCTAD suggested regulating crypto exchanges, digital wallets, and decentralized finance. Additionally, financial institutions might not be allowed to retain cryptocurrencies and stablecoins or provide ancillary services.
Also, the authorities campaigned for curbs on cryptocurrency ads and called for international cooperation between regulatory, information-sharing, and taxing bodies related to cryptocurrencies.
Finally, it proposed reworking capital regulations to account for cryptocurrencies’ decentralized, global, and pseudonymous characteristics.
On the Flipside
- The economic benefits of cryptocurrencies to developing countries depend heavily on the mass adoption of cryptocurrencies. However, excessive price volatility and the lack of backup and centralization do not support a stable price level. Strong regulation and more political support for cryptocurrencies could help in achieving more stable prices.
- Cryptocurrencies can only get needed political support if the government or central banks control the money supply. This would reduce the many benefits cryptocurrencies have.
- Currently, cryptocurrencies support the growth process of developing countries in limited ways. The future development heavily depends on the regulations introduced, the resulting price stability, and the adoption of cryptocurrencies.
Why You Should Care
- According to the research on the effect of crypto on developing countries, cryptocurrencies could provide a significant benefit. It helps to overcome the lack of social trust and increase access to financial services.
- Reduction of the transaction fees and time makes cross-border payments more accessible, as well as peer-to-peer lending and international trade.
- Cryptocurrencies in the developing world could be considered a medium to support the growth process by increasing financial inclusion, providing better traceability of funds, and helping people to escape poverty.