UN Agency: Crypto Adoption Threatens Developing Countries

The United Nations Conference on Trade and Development (UNCTAD) has warned that cryptocurrency use threatens developing countries’ monetary sovereignty — especially their ability to collect needed taxes — and remedies should include the global coordination of cryptocurrency taxation.

While noting in an announcement that cryptocurrencies can ease the sending of remittances from those working abroad — a positive for developing countries’ economies — other traits of cryptocurrencies undermine the economies where they’re used.

A companion report cited data for 2021 indicating that among the world’s top 20 economies, the highest percentages of residents who own cryptocurrency are in: Ukraine, 12.7%; the Russian Federation, 11.9%; Venezuela, 10.3%; Singapore, 9.4%; Kenya, 8.5%; the United States, 8.3%; and India, 7.3%.

Enforcing capital controls are difficult because cryptocurrency transactions don’t require intermediaries that can be compelled to report activity and participants to governments, according to the announcement. Additionally, regulations governing cryptocurrency transactions are too vague in much of the developing world to allow compliance even by parties that wish to abide by rules.

“To improve taxpayer compliance rates and combat tax evasion, tax authorities should clearly define the legal status of cryptocurrencies and require crypto exchanges, e-wallet providers and decentralized finance (DeFi) platforms to report gross inflows and outflows on all business and personal accounts,” the announcement stated.

Another recommendation is that countries “implement a global tax cryptocurrency regulation that considers the needs and challenges of developing countries,” according to the announcement. Additionally, companies should share information to more-effectively capture tax evaders.

As helpful as easy and low-cost remittances are, the announcement stated, “given the negative socioeconomic impact these private digital currencies bring about, countries should consider imposing higher taxes on them in comparison to other financial assets to discourage holding and transacting cryptocurrencies.”

Stablecoins are especially risky because they increasingly are used as digital substitutes for traditional national currencies, according to the companion report. Possible remedies include central bank digital currencies (CBDCs) or growing adoption of existing commercial payments transfer platforms so individuals have “safe, reliable and affordable” ways to send funds.

Interest in the impact of cryptocurrencies’ use as CBDCs has surged since El Salvador took the unusual step of making bitcoin its main national currency.

Read more: El Salvador’s Adoption of Bitcoin as Legal Tender Addressed in Congressional ACES Act

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