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UN Body Says Cryptocurrency is Dangerous for Developing Nations

The UN trade and development body, UNCTAD on Wednesday called for action to curb cryptocurrencies in developing nations,stating that while rewarding to some, they were an unstable financial asset with social risks and costs.

The agency warned that they pose a threat to financial stability, domestic resource mobilization, and the security of monetary systems.

There are currently at least 19,000 cryptocurrencies in existence and in 2021, developing countries accounted for 15 of the top 20 economies that owns cryptocurrencies.

The three risks:

“Recent digital currency shocks in the market suggest that there are private risks to holding crypto, but if the central bank steps in to protect financial stability, then the problem becomes a public one,” UNCTAD said.

Furthermore, if cryptocurrencies continue to grow as a means of payment, and even replace domestic currencies unofficially, the “monetary sovereignty” of countries could be jeopardized.

“It is argued that a domestic digital payment system that serves as a public good could fulfil at least some of the reasons for crypto use and limit the expansion of cryptocurrencies in developing countries,” said UNCTAD.

 

UNCTAD has urged governments “to maintain the issuance and distribution of cash” given the risk of deepening the digital divide in developed countries.

The final policy brief showed discusses how cryptocurrencies can be used for tax evasion and are a new channel for undermining domestic resource mobilization in developing countries.

While cryptocurrencies can facilitate remittances, UNCTAD warned that they may also enable tax evasion and avoidance through illicit financial flows – similar to a tax haven, where ownership is not easily identifiable.

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