The UN Conference on Trade and Development (UNCTAD) has called for developing nations to take measures to curb cryptocurrencies to avert possible threats to monetary sovereignty.
This was cautioned in three policy briefs published by UNCTAD on Wednesday.
The policy briefs included:
- “All that glitters is not gold: The high cost of leaving cryptocurrencies unregulated”,
- “Public payment systems in the digital era: Responding to the financial stability and security-related risks of cryptocurrencies,” and
- “The cost of doing too little too late: How cryptocurrencies can undermine domestic resource mobilization in developing countries.”
The policy papers looked at the uptake of cryptocurrencies around the world and analyzed the risks, the costs and the opportunity that the adoption of cryptocurrencies brings to countries, particularly in emerging economies which are either financially challenged or are struggling with financial instability in the form of currency valuations.
It cautioned that countries’ monetary sovereignty may be jeopardized if cryptocurrencies end up being frequently used as a method of payment or even unofficially replace national currencies.
The policy briefs noted that the prevalence of private digital currencies in developing countries grew significantly during the novel coronavirus (Covid-19) pandemic, posing risks and costs with regard to national monetary sovereignty, macroeconomic stability and policy space.
Although digital currencies proved to be benefitting in some cases, they are unstable assets that can pose risks and costs, the UN trade and development body warned.
In the first policy brief – All that glitters is not gold: The high cost of leaving cryptocurrencies unregulated – UNCTAD addresses the risks and costs and the adoption of cryptocurrency in developing countries and the state of the regulatory landscape.
It noted how developing countries struggling financially were keener to take up cryptocurrencies, oftentimes more than developed economies.
It showed that in Pakistan, the pace was so frightening that around 4.1% of the population had taken up digital currency holdings in 2021. This was more than even South Korea and Australia, where only 3.8% and 3.4% of the population have taken up digital currencies.
Unsurprisingly, the top three leading countries taking up cryptocurrencies were Ukraine and Russia followed by Venezuela.
India was at 7.3%, just behind the US which sees 8.3% of its population hold digital currencies.
In the second policy brief, UNCTAD recommended the implementation of cryptocurrencies for the stability and security of monetary systems, and for attaining financial stability.
The final brief covered how cryptocurrencies have emerged as a new source that is undermining domestic resource mobilization and identified risks of acting too late or too little.
UNCTAD has pointed out authorities to curb the expansion of cryptocurrencies in developing countries and highlighted some recommendations, including a ban on advertisements related to cryptocurrencies, regulation on exchanges, digital wallets and decentralized finance and ban financial institutions from holding cryptocurrencies.