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