Although private digital currencies reward some by facilitating money transfers, they are considered unstable financial assets that can also carry social risks and costs.
The United Nations Conference on Trade and Development (UNCTAD) published three analytical notes on Wednesday that focus on these risks and costs, including the threats that cryptocurrencies bring to financial stability, the mobilization of domestic resources and the security of monetary systems.
Not everything that glitters is gold
The first analytical report, entitled "Not All that Glitters is Gold: the High Cost of Unregulating cryptocurrencies," examines the reasons for the rapid adoption of cryptocurrencies in developing countries, including facilitating money transfers and their functioning as a barrier preventing currency risks and inflation.
The report explains that the recent turmoil experienced by digital currencies indicates that there are special risks of owning cryptocurrencies, but if the central bank intervenes to protect financial stability, the problem becomes public.
The report warns that the monetary sovereignty of countries is under threat if cryptocurrencies become a widespread means of payment and informally replace local currencies.
In developing countries with unsatisfied demand for reserve currencies, stable coins pose special risks.
For some of these reasons, the IMF expressed the opinion that cryptocurrencies pose risks as legal tender.
Government payment systems in the Digital Age
The second summary was entitled "Public Payment Systems in the Digital Age: Responding to risks related to financial stability and security of cryptocurrencies."
It focuses on the impact of cryptocurrencies on the stability and security of monetary systems and on financial stability.
There are those who say that the domestic digital payment system, which serves as a public utility, can at least eliminate some of the reasons for using cryptocurrencies and thereby limit the spread of cryptocurrencies in developing countries.
Depending on national capabilities and needs, monetary authorities can provide a digital currency of the central bank or, more conveniently, a system of fast retail payments. Given the risk of widening the digital divide in developing countries, UNCTAD urges the authorities to continue issuing and distributing cash.
The cost of an insufficient number of procedures
The third analytical note was entitled: "The price of doing too little too Late: How cryptocurrencies can undermine the mobilization of domestic resources in developing countries."
The report examines how cryptocurrencies have become a new channel that undermines the mobilization of domestic resources in developing countries.
While cryptocurrencies can facilitate transfers, they can also facilitate tax evasion through illegal flows, just as if they have become a tax haven where it is not easy to recognize the owner.
Thus, cryptocurrencies may also limit the effectiveness of capital controls, a key tool for developing countries to preserve policy space and macroeconomic stability.
Recommendations of UNCTAD
UNCTAD urges the authorities to take the following measures to limit the spread of cryptocurrencies in developing countries:
- Ensuring comprehensive financial regulation of cryptocurrencies by regulating cryptocurrency exchanges, digital wallets and decentralized finance, prohibiting regulated financial institutions from storing cryptocurrencies.
- Limit advertising related to cryptocurrencies, as is the case with other high-risk financial assets.
- Ensuring a secure, reliable and affordable government payment system adapted to the digital age.
- Approval and implementation of global tax coordination regarding tax transactions with cryptocurrencies, their regulation and information exchange.
- Revision of the capital movement control system taking into account the decentralized features of cryptocurrencies.
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