Developing countries should introduce widespread restrictions on crypto usage given the risks to tax collection, monetary policy and financial stability, and ban banks from holding crypto, the United Nations’ development arm said in three reports published Thursday.
The UN Conference on Trade and Development, UNCTAD, warns that the rising use of crypto for domestic payments, and by migrant workers sending funds back home, challenges states' authority in monetary matters, and may cause “leakage” of development funds.
The agency advised imposing higher taxes on crypto transactions, requiring exchanges and wallets to register with regulators, and curbing or forbidding crypto ads.
“The benefits that cryptocurrencies may bring to some individuals and financial institutions are overshadowed by the risks and costs they entail, particularly in developing countries,” UNCTAD said, citing risks such as tax evasion and losses from price swings that might need to be bailed out by central banks.
The document advises countries to “ban regulated financial institutions from holding stablecoins and cryptocurrencies or offering related products to clients.”
Stablecoins are cryptocurrencies that seek to maintain their value with respect to an established fiat currency such as the U.S. dollar – but they don’t always succeed, as the recent collapse of terraUSD showed.
Figures cited by UNCTAD show crypto is particularly popular in Russia, Ukraine and Venezuela, three countries affected by sanctions, war and hyperinflation. As of November 2021, 41 developing countries had either prohibited banks from dealing in crypto or prevented exchanges from offering crypto to retail investors, and nine have banned crypto outright, the report said.
Standard-setters are reviewing how conventional banks should interact with the world of crypto, and are leaning toward imposing a cap on holdings of assets such as bitcoin. Other international organizations have proposed extra curbs intended to shore up money-laundering rules, capital controls and tax collection.
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