UN, August 11 (IANS) – The United Nations Conference on Trade and Development (UNCTAD) has issued three policy reports calling for action to curb cryptocurrencies in developing countries.
While private digital currencies have rewarded and facilitated some remittances, they are volatile financial assets that can also pose social risks and costs, the United Nations Trade and Development Organization warned on Wednesday.
Three newly released UNCTAD policy reports, released on Wednesday, examine the risks and costs of cryptocurrencies, including the threats cryptocurrencies pose to financial stability, domestic resource mobilization, and the security of the monetary system.
Global use of cryptocurrencies has grown exponentially during the Covid-19 pandemic, including in developing countries, the Xinhua News Agency reported.
According to UNCTAD, the reason for the rapid adoption of cryptocurrencies in developing countries is the facilitation of remittances and their use as a hedge against currency and inflation risks.
The recent turmoil in the digital currency market suggests that owning cryptocurrencies entails personal risk, but when central banks step in to protect financial stability, the issue becomes public, the agency added.
If cryptocurrencies become a widespread means of payment and even unofficially replace local currencies, it could jeopardize the sovereignty of the country’s currency.
In developing countries with unmet demand for reserve currencies, so-called “stable coins”, a type of digital currency pegged to the US dollar, pose certain risks.
“For some of these reasons, the International Monetary Fund has expressed the view that cryptocurrencies as legal tender poses risks,” the agency said.
UNCTAD called on authorities to take action to stop the spread of cryptocurrencies in developing countries and outlined several recommendations including limiting advertising related to cryptocurrencies and other risky financial assets.
There is a need to regulate crypto exchanges, digital wallets and decentralized finance, and to prohibit regulated financial institutions from holding cryptocurrencies, including stablecoins, or offering related products to customers, the agency added.
Capital controls need to be revised to reflect the decentralized, borderless and pseudonymous nature of cryptocurrencies, notes UNCTAD.