Why African Developing Countries are Being Urged by the UN to Regulate Cryptocurrencies

The United Nations Conference on Trade and Development (UNCTAD) urges poor countries to regulate cryptocurrencies since they run the danger of displacing “domestic currencies.” The UN organization claims that the epidemic caused a significant increase in the usage of cryptocurrencies in poor countries. According to the UN organization, during the epidemic, cryptocurrency use grew significantly in developing nations, with Kenya, Nigeria, and South Africa being among the top ten countries in terms of the percentage of their populations that own cryptocurrencies.

Read on: Kenya a Leader in Cryptocurrency Adoption in Africa

According to UNCTAD’s policy brief No. 100, two key causes are driving the rise in cryptocurrency use in developing nations during the pandemic:

  • First, using cryptocurrencies to transmit remittances was a convenient method due to its affordability and quickness. Traditional remittance services’ already high prices during the epidemic increased even worse because of associated difficulties during lockdown times.
  • Second, middle-class individuals in emerging nations, particularly those with depreciating currencies and growing inflation, are the major holders of cryptocurrencies as part of their financial investments and speculative activities (triggered or accentuated by the COVID-19 crisis). Cryptocurrencies have been viewed in various marketplaces as a tool to safeguard personal savings.

The UNCTAD, however, highlights three main dangers that cryptocurrencies pose for poor countries:

Risks of Bitcoin Growth UNCTAD claims that

The usage of cryptocurrencies may increase the risk of financial instability, UNCTAD cautions in its policy brief.

UNCTAD claims that:

Read on: The central African Republic Introduces Sango Coin Cryptocurrency as Suspicion Lingers Over Motives

“Monetary authorities may need to intervene if prices fall to restore financial stability. It’s crucial to note that the usage of cryptocurrencies opens up a new route for illegal financial flows in poor nations.

Second, the usage of cryptocurrencies impairs the efficiency of capital restrictions, a crucial tool in developing nations for reducing the accumulation of macroeconomic and financial vulnerabilities and expanding policy flexibility.

The second concern is comparable to those mentioned by an IMF delegation in May 2022 when they recommended developing countries tighten control over cryptocurrency flows.

Last but not least, UNCTAD cautions that if uncontrolled, cryptocurrencies may grow like wildfire and even informally displace national currencies (a process known as a crypto nation), endangering the monetary sovereignty of nations.

The UNCTAD policy brief states:

“Developing nations with unmet demand for reserve currencies are more at danger from using stablecoins.

In May 2022, for instance, the unrest led to a move toward higher-quality stablecoins that report audited holdings of their backings.

The International Monetary Fund (IMF) has highlighted worries about the dangers of adopting cryptocurrencies as legal money, according to UNCTAD.

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