UNCTAD tackles crypto in the developing world in a series of critical policy briefs

The United Nations organization urges countries with emerging economies to implement regulations to avoid the potentially destabilizing influence of crypto- currency.

The United Nations Conference on Trade and Development (UNCTAD) released a policy brief on cryptocurrency on Wednesday. This is the third consecutive dossier the agency has dedicated to crypto, and together they represent a detailed assessment of the risks crypto poses to developing economies and options for addressing those risks.

UNCTAD Policy Brief No. 102, dated July but recently released, argues that while cryptocurrency can facilitate remittances and encourage financial inclusion, it can also undermine the mobilization of domestic resources in developing economies by enabling tax avoidance by hiding ownership of financial flows and directing them out of the country. The authors of the brief statement, “Cryptocurrencies share all the characteristics of traditional tax havens – pseudonymous accounts, and insufficient tax oversight or weak enforcement.”

Most developing countries do not have tax regulations covering cryptocurrencies, and the lack of a third-party reporting system makes it easy to conceal crypto holdings, the brief notes. He continued:

"Contrary to the widely held view that cryptocurrencies are not intermediated, but operate using automated protocols, there are countless service providers, including crypto exchanges, wallets digital and decentralized finance (DeFi) platforms, which enable the use and holding of cryptocurrencies.Once regulated, these service providers could help improve tax reporting.”

The note recommends that developing countries define the legal status of cryptocurrencies and establish reporting requirements for crypto service providers. Additionally, it recommends the implementation of “global cryptocurrency tax regulations” and a system for sharing information on holding and trading crypto. Higher taxes on cryptocurrencies relative to other assets would discourage holding them and using them for transactions, the brief notes.

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