UN: Crypto adoption threatens developing countries

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

While one announcement notes that cryptocurrencies can facilitate the sending of remittances from those working abroad – a positive for developing countries’ economies – other characteristics of cryptocurrencies undermine the economies where they are used.

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

Enforcing capital controls is difficult because cryptocurrency transactions do not require intermediaries who can be forced to report activity and participants to authorities, according to the announcement. In addition, regulations governing cryptocurrency transactions are too vague in much of the developing world to allow compliance even by parties who wish to follow the rules.

“To improve taxpayer compliance 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 of all business and personal accounts,” it said in the announcement.

Another recommendation is that countries “implement a global cryptocurrency tax regulation that takes into account the needs and challenges of developing countries,” according to the announcement. In addition, companies should share information to more effectively catch tax evaders.

As useful as easy and affordable transfers are, the announcement said, “given the negative socio-economic impact these private digital currencies bring, countries should consider imposing higher taxes on them compared to other financial assets to discourage holding and trading cryptocurrencies.”

Stablecoins are particularly risky because they are increasingly used as digital substitutes for traditional national currencies, according to the accompanying report. Possible solutions include central bank digital currencies (CBDCs) or increasing use of existing commercial payment transfer platforms, so that individuals have “safe, reliable and affordable” ways to send money.

Interest in the impact of using cryptocurrencies as CBDCs has increased 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 the Congressional ACES Act

For all PYMNTS crypto and EMEA coverage, subscribe to the daily Crypto and EMEA newsletter.