Africa: UN calls for an end to the rise of cryptocurrencies

While the United Nations Conference on Trade and Development (Unctad) recognizes that private digital currencies have enriched some individuals and institutions, they nevertheless constitute an unstable financial asset that can cause “risks and social costs. The negative environmental impact of cryptocurrencies has been widely covered in the press over the past few weeks and months, and their volatility has been flagged as a cause for concern.

Indeed, their benefits are for some overshadowed by the threats they pose to financial stability, domestic resource mobilization and the security of monetary systems. There has been a sharp increase in the use of cryptocurrencies during the covid-19 pandemic. Today there are 19,000. In 2021, among the top 20 countries with the highest share of the population owning cryptocurrencies, 15 were developing countries. Topping the list is Ukraine (12.7%), followed by Russia (11.9%) and Venezuela (10.3%).

« All that glitters is not gold »

Entitled “All that glitters is not gold. Not regulating cryptocurrencies is very expensive,” the first note examines the reasons for the rapid adoption of cryptocurrencies in developing countries, including the facilitation of remittances and the inflation protection of fiat currencies. “Recent market shocks to digital currencies suggest that holding cryptocurrencies is risky. If a central bank intervenes to protect their financial stability, then the problem becomes public.”said Unctad, noting that while the development of cryptocurrencies as a means of payment, or even to unofficially replace national currencies, the “ monetary sovereignty » countries could be jeopardized; and emphasizing the danger posed by the stablecoins for countries in need of reserve currencies. In this respect, for the International Monetary Fund, cryptocurrencies present risks as legal tender.

The second note discusses the impact of cryptocurrencies on the stability and security of monetary systems, and for the stability of the financial architecture in general, calling for the limitation of the expansion of cryptocurrencies in developing countries, while by urging governments to maintain the issuance and distribution of cash », given the risk of aggravation of the digital divide in developed countries.

Cryptocurrencies and tax evasion fears

The third and final policy brief examines how cryptocurrencies have become a new channel for undermining domestic resource mobilization in developing countries, and warns of the dangers of doing “ too little, too late “. While cryptocurrencies can facilitate remittances, they can also enable fraud and encourage tax evasion through illicit financial flows – much like a tax haven. ” Thus, cryptocurrencies can also hamper the effectiveness of capital controls, a key instrument for developing countries to preserve their policy space and macroeconomic stability. “, said the agency.

Curb the expansion of cryptocurrencies

To halt the expansion of cryptocurrencies in developing countries, UNCTAD is urging authorities to regulate cryptocurrency exchanges, digital wallets and decentralized finance. Regulated financial institutions should be prohibited from holding cryptocurrencies, including stablecoins, or to offer related products to their customers. archyde news related to cryptocurrencies should also be regulated, as is the case for other high-risk financial assets, which advises governments to set up a public payment system “ safe, reliable, affordable and fit for the digital age “. It also advocates global tax coordination regarding the tax treatment of cryptocurrencies, regulation, and information sharing. It also calls for rethinking capital controls to take into account the “ decentralized, borderless nature of cryptocurrencies » and the use of the pseudonym of its users.

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