UNCTAD Releases Report On Crypto: Here’s What It Says
- The UNCTAD said that the crypto ecosystem grew by 2,300% between September 2019 and June 2021
- It highlighted the potential risks associated to crypto adoption especially in the developing nations
The United Nations Conference on Trade and Development (UNCTAD) recently published a report on cryptocurrencies that outlines the development, risks, and measures for different governments.
The report, titled “All that glitters is not gold: The high cost of leaving cryptocurrencies unregulated,” says that the cryptocurrency ecosystem expanded by 2,300% between September 2019 and June 2021, particularly in developing countries.
According to UNCTAD, there are two major reasons for the increased adoption of cryptocurrencies.
First, cryptocurrency use was an attractive channel, in terms of price and speed. These features made it extremely popular during the times of the pandemic when the high costs of traditional remittance services rose even higher.
Second, as they are perceived as a way to protect savings, cryptocurrencies are mainly held by middle-income individuals in developing countries, particularly in countries facing currency depreciation and rising inflation.
Underlying risks
According to the report, returns from cryptocurrency trading and holding are highly individualized, just like conventional speculative trades. Overall, the risks and costs they present in developing nations overshadow them.
UNCTAD listed some of the major risks associated with using cryptocurrencies. First, the use of cryptocurrencies may cause financial instability. Monetary authorities may need to intervene to restore financial stability if prices fall. Importantly, the use of cryptocurrencies opens up a new channel for shady financial flows in developing nations.
Moreover, the effectiveness of capital controls, a crucial tool in developing nations to reduce the buildup of macroeconomic and financial vulnerabilities and expand policy options, is undermined by the use of cryptocurrencies, the report said.
Third, if uncontrolled, cryptocurrencies might spread as a mode of payment and even informally replace domestic currencies, endangering national monetary sovereignty.
The report mentioned several stablecoins’ depegging, which has provoked anxiety among crypto holders several times in the past, leading to major sell-off and market turmoil.
Suggestions for policymakers
The report went on to suggest three important steps that policymakers around the world may consider while dealing with the crypto sector.
Firstly, ensure thorough financial regulation by taking the following steps:
- Make using cryptocurrencies less appealing by mandating the registration of crypto exchanges and digital wallets.
- Ban the ownership of stablecoins and cryptocurrencies by regulated financial institutions and the sale of associated products to customers
- Put controls on the decentralized finance sector
Secondly, restricting the advertisement of crypto exchanges and digital wallets in public spaces and on social media.
“This is an urgent need in terms of consumer protection in countries with low levels of financial literacy, as even limited exposure to cryptocurrencies may lead to significant losses.”
said the UNCTAD’s report.
Thirdly, developing a public payment system to serve as a public good, such as a central bank digital currency. Moreover, it suggested fast retail payment systems if the regulators wanted to avoid the regulatory and technological complexities of CBDC.
A crypto journalist with over 3 years of experience in DeFi, NFT, metaverse, etc. Parth has worked with major media outlets in the crypto and finance world and has gained experience and expertise in crypto culture after surviving bear and bull markets over the years.
