This May 08, 2022 illustration picture taken in London on May 8, 2022 shows gold plated souvenir cryptocurrency Tether, Bitcoin and Etherium coins arranged beside a screen displaying a trading chart. (JUSTIN TALLIS / AFP)

UNITED NATIONS – The UN Conference on Trade and Development (UNCTAD) on Wednesday called for actions to curb cryptocurrencies in developing countries.

While private digital currencies have rewarded some, and facilitated remittances, they are an unstable financial asset that can also bring social risks and costs, the UN trade and development body warned in three policy briefs.

The UNCTAD policy briefs examined the risks and costs of cryptocurrencies, including the threats they bring to financial stability, domestic resource mobilization and the security of monetary systems.

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Global use of cryptocurrencies has increased exponentially during the COVID-19 pandemic, including in developing countries.

Capital controls should be redesigned to take account of the decentralized, borderless and pseudonymous features of cryptocurrencies, said UNCTAD

Reasons for the rapid uptake of cryptocurrencies in developing countries include facilitation of remittances, as well as their use as a hedge against currency and inflation risks, UNCTAD said.

Recent digital currency shocks in the market suggest that there are private risks to holding cryptocurrencies, but if the central bank steps in to protect financial stability, then the problem becomes a public one, the agency said.

If cryptocurrencies become a widespread means of payment and even replace domestic currencies unofficially, this could jeopardize the monetary sovereignty of countries.

In developing countries with unmet demand for reserve currencies, the so-called "stablecoins", a type of digital currency that is pegged to the US dollar, pose particular risks.

"For some of these reasons, the International Monetary Fund has expressed the view that cryptocurrencies pose risks as legal tender," the agency said.

UNCTAD urged authorities to act to halt the expansion of cryptocurrencies in developing countries and outlined several recommendations, including restricting advertisements related to cryptocurrencies as for other high-risk financial assets.

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There are needs to regulate crypto exchanges, digital wallets and decentralized finance, and to ban regulated financial institutions from holding cryptocurrencies including stablecoins, or offering related products to clients, the agency said.

Capital controls should be redesigned to take account of the decentralized, borderless and pseudonymous features of cryptocurrencies, UNCTAD said.