UNCTAD urges action to curb cryptocurrencies in developing countries

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UNCTAD urges action to curb cryptocurrencies in developing countries

This May 08, 2022 illustration picture taken in London on May 8, 2022 shows gold plated souvenir coins Tether, Bitcoin and Etherium coins arranged next to a screen displaying a trading chart. JUSTIN TALLIS AFP UN NATIONS UNCTAD called for action to curb cryptocurrencies in developing countries.

Private digital currencies have rewarded some and facilitated remittances, but they are an unstable financial asset that can also bring social risks and costs, the UN trade and development body warned in three policy briefs.

The policy briefs of the UNCTAD examined the risks and costs of cryptocurrencies, including the threats they bring to financial stability, domestic resource mobilization and security of monetary systems.

The use of cryptocurrencies has increased exponentially during the COVID-19 pandemic, including in developing countries.

Facilitation of remittances, as well as their use as a hedge against currency and inflation risks are reasons for the rapid adoption of cryptocurrencies in developing countries, according to UNCTAD.

The agency said that if the central bank steps in to protect financial stability, the problem becomes a public one because of recent digital currency shocks in the market.

If cryptocurrencies become a widespread means of payment and even replace domestic currencies unofficially, this could jeopardize the monetary sovereignty of countries.

The so-called stable coin, a type of digital currency that is pegged to the US dollar, poses particular risks in developing countries with unmet demand for reserve currencies.

The International Monetary Fund believes that cryptocurrencies pose risks as legal tender for some reasons, the agency said.

UNCTAD urged authorities to halt the expansion of cryptocurrencies in developing countries and outlined several recommendations, including banning advertisements related to cryptocurrencies as well as other high-risk financial assets.

The agency said that there are needs to regulate digital wallets, digital exchanges, and decentralization, and to ban financial institutions from holding cryptocurrencies, including stablecoins, or offering related products to clients.

UNCTAD said that capital controls should be redesigned to take account of the decentralized, borderless and pseudonymous features of cryptocurrencies.