UNCTAD highlighted that the use of cryptocurrencies globally, including the developing countries, has increased exponentially during the COVID-19 pandemic.
As per the data released by the UN body on the population share in the top 20 economies that owned digital currencies in 2021, Ukraine topped the list with 12.7 pc of its population holding such currencies while India was placed at the seventh position.
Though these private digital currencies have helped some people and facilitated remittances, the UN agency said that they are an unstable form of money that also carries social risks and costs.
The agency also looked at the factors that contributed to cryptocurrencies’ quick adoption in developing nations, including the facilitation of remittances among others.
With facilitation of remittances, they may also enable tax evasion and avoidance through illicit flows, just as if to a tax haven where ownership is not easily identifiable.
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“Recent digital currency shocks in the market suggest that there are privacy risks to holding crypto, but if the central bank steps in to protect financial stability, then the problem becomes a public one,” UN said.
The report further insisted upon the past few months scenario, where the price of Bitcoin had fallen precipitously from its record high, making investors poorer. Provided most other well-known crypto assets have recently fallen more precipitously.
Cryptocurrencies might potentially inadvertently replace national currencies, the report continued, endangering nations’ ability to control their own money.
“In developing countries with unmet demand for reserve currencies, stablecoins pose particular risks. For some of these reasons, the International Monetary Fund has expressed the view that cryptocurrencies pose risks as legal tender.”
In wake of this, the UN organization asked the relevant authorities to provide thorough financial regulation of cryptocurrencies by regulating crypto exchanges, digital wallets, and decentralized finance as well as prohibiting authorized financial institutions from owning cryptocurrencies.
Additionally, it requested agreement on the adoption of worldwide tax coordination for cryptocurrency tax, regulation, and information sharing, as well as limitations on ads connected to cryptocurrencies.
The cryptocurrency trade is significant because a number of financial organizations and central banks have expressed worry about the financial dangers associated with the trading in virtual currencies, including cryptocurrencies. This type of money has the potential to be utilized for many unsavory purposes.
Shaktikanta Das, governor of the Reserve Bank of India, recently stated that cryptocurrencies are a clear hazard and that anything that generates value from conjecture, without any foundation, is only speculative activity going by a fancy name.
The European Central Bank had previously warned that the character and size of the cryptocurrency markets are fast changing and will pose risks to financial stability if the current trends continue. The G20 finance ministers and central bank governors will receive a report on the regulatory and supervisory aspects of stablecoins and other crypto-assets in October from the Financial Stability Board, an international organization that monitors and makes recommendations regarding the global financial system. It is working to ensure that crypto-assets are subject to robust regulation and supervision.
“Crypto-assets, including so-called stablecoins, are fast-evolving. The recent turmoil in crypto-asset markets highlights their intrinsic volatility, structural vulnerabilities and the issue of their increasing interconnectedness with the traditional financial system,” the Financial Stability Board had said.
