The UN Conference on Trade and Development (UNCTAD) called for action to curb cryptocurrencies in developing countries in three policy briefs.While private digital currencies have rewarded some, and facilitate remittances, they are an unstable financial asset that can also bring social risks and costs, the UN trade and development body warned on Wednesday.
The three newly-released UNCTAD policy briefs published on Wednesday examined the risks and costs of cryptocurrencies, including the threats cryptocurrencies bring to financial stability, domestic resource mobilisation and the security of monetary systems.
Global use of cryptocurrencies has increased exponentially during the Covid-19 pandemic, including in developing countries, Xinhua news agency reported.Reasons for the rapid uptake of cryptocurrencies in developing countries include facilitation of remittances, as well as their use as a hedge against currency and inflation risks, UNCTAD said.
Recent digital currency shocks in the market suggest that there are private risks to holding cryptocurrencies, but if the central bank steps in to protect financial stability, then the problem becomes a public one, the agency added.
If cryptocurrencies become a widespread means of payment and even replace domestic currencies unofficially, this could jeopardise the monetary sovereignty of countries.In developing countries with unmet demand for reserve currencies, the so-called "stablecoins", a type of digital currency that is pegged to the US dollar, pose particular risks.
"For some of these reasons, the International Monetary Fund has expressed the view that cryptocurrencies pose risks as legal tender," the agency said.UNCTAD urged authorities to act to halt the expansion of cryptocurrencies in developing countries and outlined several recommendations, including restricting advertisements related to cryptocurrencies as for other high-risk financial assets.
There are needs to regulate crypto exchanges, digital wallets and decentralised finance, and to ban regulated financial institutions from holding cryptocurrencies, including stablecoins, or offering related products to clients, the agency added.
Capital controls should be redesigned to take account of the decentralised, borderless and pseudonymous features of cryptocurrencies, UNCTAD noted.