The United Nations Conference on Trade and Development (UNCTAD) urged actions to curb the growth of cryptocurrencies in developing countries. The three policy briefs conveying the same were published on Wednesday. The UN trade and development body warned that while private digital currencies have rewarded and facilitated remittances to some, they are still unstable financial assets involving social risks and costs.
The newly released policy briefs by UNCTAD examined the costs and risks of cryptocurrencies, including the threats cryptocurrencies bring to the security of monetary systems, financial stability, and domestic resource mobilization.
Global use of cryptocurrencies has increased drastically during the pandemic, especially in developing countries. Reasons for the sudden uptake of crypto in developing countries include remittances facilitation and their use as a hedge against risks relating to inflation and currency.
Recent digital currency dips in the crypto market suggest that there are personal risks involved in holding cryptocurrencies. However, it becomes a public problem if the central bank steps in to protect financial stability. This could jeopardize the monetary sovereignty of countries if crypto becomes a widespread means of payment and even replaces domestic currencies unofficially.
In developing countries where the demand for reserve currencies is unmet, the so-called stablecoins – a kind of digital currency that is pegged to the US dollar – pose particular risks. The agency said that the International Monetary Fund had expressed the view that cryptocurrencies pose risks as legal tender for some of these reasons.
UNCTAD called for authorities to act to halt the rising expansion of cryptocurrencies in developing countries. It also mentioned several recommendations, including restricting advertisements related to cryptocurrencies.