The United Nations Conference on Trade and Development (UNCTAD) issued a policy report in June warning that cryptocurrencies could threaten the monetary sovereignty of developing countries and recommended strict regulatory rules to limit their adoption.
The report notes that the global adoption rate of cryptocurrencies has grown exponentially during the COVID-19 pandemic, with the cryptocurrency ecosystem expanding 2,300% between September 2019 and June 2021, and becoming particularly prevalent in developing countries, where 15 of the top 20 countries with the highest adoption rates meet UN standards,
This poses considerable risks and costs to the monetary sovereignty, policy space and macroeconomic stability of these countries.
UNCTAD warns that the adverse effects of cryptocurrencies on these countries far outweigh the benefits they may bring to individuals and financial institutions.
Cryptocurrencies can threaten financial stability in developing countries, facilitate illicit financial activity, prevent authorities from restricting financial flows and endanger countries’ monetary sovereignty.
It’s not about approving or disapproving [cryptocurrencies], but pointing out the social risks and costs associated with it, Penelope Hawkins, an economist and senior economic affairs officer at the organization, told Decrypt.
This recommendation applies to any speculative or risky financial product where the return is uncertain.
The report also suggests that developing countries should consider strict crypto regulations, such as making it less attractive to use cryptocurrencies by taxing transactions using the technology and requiring mandatory registration of digital wallets and cryptocurrency exchanges,
Financial institutions could also be barred from holding digital assets and from providing crypto-related services to customers.
It also proposes that developing countries restrict or ban advertising by cryptocurrency companies in public places or on social media platforms, saying this is an urgent action on consumer protection in countries with insufficient financial literacy.
Finally, it is advocated that these countries should develop safe, reliable and affordable public payment systems suitable for the digital age, such as central bank digital currency (CBDC) or rapid retail payment systems.
Rohan Grey, a law professor at Wilhelmit University who has served as a digital currency adviser to the United Nations, said the lack of regulation of cryptocurrencies means fraud is rampant and consumer harm is akin to having a new drug that hasn’t even been approved by the FDA and boasting that it can solve cancer.
In addition, he agrees that CBDCS are safer than stablecoins, although there are still risks on the regulatory and censorship side.
UNCTAD noted that while there was no policy response across the board, it urged countries to take a forward-looking approach to cryptocurrency regulation, stressing that doing too little or too late would lead to higher costs in the future.