AFRICA: UN Trade Body Cautions Developing Countries Against Cryptocurrencies, Here is Why!


  • According to the UN, there should be a need to regulate cryptocurrencies in Africa, exchanges, digital wallets, and decentralized finance.
  • Countries should also prevent regulated financial institutions from holding cryptocurrencies which include stablecoins or offering related products to clients. 

Cryptocurrencies in Africa are growing at an exponential rate. As this signifies the dawn of new financial technology on the Continent, the United Nations think otherwise. According to the UN Conference on Trade and Development (UNCTAD), if cryptocurrencies become a widespread means of payment and even go as far as replacing domestic currencies unofficially, the dominance of countries could be endangered.

The UN trade and development body, UNCTAD has, therefore, urged developing countries to take action against cryptocurrencies. 

While private digital currencies have rewarded some people and institutions, they are an unstable financial property that can go further to bring social risks and costs, the UN trade and development body warned.

According to them, the benefits of crypto to some individuals and institutions are being overshadowed by the threats they pose to financial stability, the security of monetary systems, and domestic resource mobilization.

They also observed that the widespread use of cryptocurrencies has increased more than it should, and this was due to the lockdown policies forced by the emergence of the COVID-19 pandemic.

Cryptocurrencies are an alternative form of payment. Transactions are done digitally through encrypted technology known as the blockchain. The use of cryptocurrency rose exponentially at an unpredicted rate during the widespread deadly COVID-19 pandemic, it reinforces a trend that was already in motion and some 19,000 are currently existing.

Cryptocurrencies in Africa Must be Controlled – the UN

In 2021, developing countries accounted for 15 of the top 20 crypto economies in terms of the share of the population that owns cryptocurrencies. The reasons for the sudden uptake of cryptocurrencies in some developing countries have to do with the facilitation of remittances, as well as the use of the asset as a hedge against inflation according to UNCTAD.

According to them, there are privacy risks while holding cryptocurrencies. The central bank has to step in presently to protect financial stability before the problem becomes uncontrollable, the agency disclosed.

If cryptocurrencies emerge as a global means of payment and as a replacement for domestic currencies without making it official, it will jeopardize the monetary sovereignty of developing countries.

For some of these reasons, the International Monetary Fund (IMF) has expected the view that cryptocurrencies pose a massive risk as legal tender.

For these reasons, UNCTAD urges authorities to act fast in curbing the expansion of cryptocurrencies in developing countries and make sure to outline numerous recommendations. This includes the act of restricting advertisements that have to do with cryptocurrencies just as other high-risk financial assets. 

According to the UN, there will be a need to regulate crypto exchange, digital wallets, and decentralized finance.

Countries should also prevent regulated financial institutions from holding cryptocurrencies which include stablecoins or offering related products to clients. 

 

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