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The UN flag. Image: Shutterstock
A recently published policy brief from the United Nations recommended developing nations take action against crypto, warning of risks associated with leaving the industry unregulated.
In the document titled “All that glitters is not gold,” first published in June, the United Nations Conference on Trade and Development (UNCTAD) stated the disadvantages posed to these nations by cryptocurrencies far outweigh the benefits they may bring to individuals and financial institutions. And the document goes as far as to suggest developing nations require the mandatory registration of all crypto wallets and ban advertisements related to cryptocurrencies.
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“This is not about approving or disapproving [of crypto] but pointing out that there are social risks and costs associated with cryptocurrency,” Penelope Hawkins, an economist and senior economic affairs officer at UNCTAD told Decrypt. “This is a recommendation that applies to any speculative or high-risk financial products where returns are uncertain.”
The intergovernmental organization cautioned cryptocurrencies could threaten the financial stability of developing nations, enable illicit financial activity, prevent authorities from limiting the flow of capital, and also jeopardize the monetary sovereignty of nations by unofficially replacing domestic currencies.
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The brief recommended governments “make the use of cryptocurrencies less attractive” by imposing taxes on transactions using the technology and requiring the mandatory registration of digital wallets and cryptocurrency exchanges. It also put forth the idea of banning financial institutions from holding digital assets and preventing them from offering crypto-related services to clients.
Developing nations should restrict or prohibit advertising from crypto companies in public places or on social media platforms, the conference proposed as well, claiming it’s an “urgent need in terms of consumer protection in countries with low levels of financial literacy” that could lead to “significant losses,” according to the policy brief.
Rohan Grey, a law professor at the Willamette University College of Law, has worked as a consultant for the United Nations on digital currencies and said the lack of regulation regarding cryptocurrencies has a documented history of hurting consumers by enabling fraud and scams.
“The ecosystem is not fully ripe and mature,” he told Decrypt. “Allowing [the industry] to aggressively market itself would be like having a new kind of drug that hasn't even gone through the FDA process trumpeting itself as solving cancer.”
The brief’s final piece of advice is for nations to develop their own payment systems that would serve as a public good, much in the same way government-built infrastructure does, and explore the creation of a central bank digital currency (CBDC).
CBDCs are a digitized form of fiat money issued by public monetary authorities. While some CBDCs function in the same way as cryptocurrencies, they are issued by governments and its value is backed by them. A few developing countries have already introduced CBDCs, such as the Bahamas, which calls its version the Sand Dollar.
“You do not have to worry that the money itself will stop having value with CBDCs in the way that you do with stablecoins,” Grey said. “$1 issued by the government can always always be redeemed for $1 issued by the government.”
While he believes that CBDCs do have risks associated with them in terms of surveillance and censorship, he said the same concerns apply to stablecoins and that the potential for default makes them a less favorable asset seeking parity with fiat currencies when compared.
The report references China’s efforts to establish a CBDC as well and mentions it as one of the nine developing countries that have banned cryptocurrencies outright. That list also includes Algeria, Bangladesh, Egypt, Iraq, Morocco, Nepal, Qatar and Tunisia.
One of the reasons that prompted the UNCTAD to release the brief is the increasing adoption of cryptocurrencies across the world, which it said was accelerated by the pandemic. The ease at which remittances could be sent drove people towards the technology, the brief said, as well as the notion that it could help safeguard household savings during times of currency depreciation and rising inflation.
“There is no one-size-fits-all policy response,” the conference said, yet urged countries to take a forward-looking approach to implementing regulation. “Doing too little or taking action too late will lead to higher costs in the future.”
The United Nations has a history of using digital assets to promote different initiatives. Earlier this year, the United Nations displayed an NFT art collection called Boss Beauty Role Models as part of International Women’s Day, which the organization has celebrated since 1975.
And in 2021, the UN backed a competition called DigitalArt4Climate, where contestants created NFTs designed around the theme of climate change. The winner had their pieces of art displayed at the Climate Change Conference that took place in Scotland.
That same year, the United Nations International Children's Emergency Fund (UNICEF) announced the launch of an NFT series on Ethereum to celebrate the agency’s history of 75 years and raise money for the Giga initiative, which helps fun internet connections for schools across the globe.
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