UNCTAD: Cryprocurrency benefits overshadowed by risks
During the pandemic, the use of cryptocurrencies increased globally at an unprecedented pace, reinforcing a trend already under way. The benefits that cryptocurrencies may bring to some individuals and financial institutions are overshadowed by the risks and costs they entail, particularly in developing countries. Penelope Hawkins, Senior Economist in the Debt and Development Finance Branch, United Nations Conference on Trade and Development joins CNBC Africa for more.
Thu, 07 Jul 2022 10:16:58 GMT
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AI Generated Summary
- The rapid adoption of cryptocurrencies in developing countries, particularly in Africa, poses significant risks due to the lack of regulation and oversight.
- Key concerns include the potential for illicit financial flows, destabilization of capital controls, and the risk of a fragmented and unstable financial system.
- Policy recommendations include enhancing financial regulation, raising awareness about cryptocurrency risks, and exploring central bank-operated digital payment systems as alternatives to unregulated cryptocurrencies.
During the pandemic, the use of cryptocurrencies soared globally, presenting both benefits and risks. The benefits of cryptocurrencies, including their potential to serve as a financial asset and ease remittances, are becoming more apparent. However, the risks associated with cryptocurrencies, particularly in developing countries, are a cause for concern according to Penelope Hawkins, a senior economist at the United Nations Conference on Trade and Development (UNCTAD). Developing countries, including several in Africa, have seen a rapid adoption of cryptocurrencies, with millions already using them for various purposes. However, the lack of regulation and oversight in the cryptocurrency space poses significant risks both at the individual and societal levels. Hawkins highlighted key areas of concern, emphasizing the need for regulatory frameworks to address these risks. The potential for illicit financial flows, the destabilization of capital controls, and the risk of a fragmented and unstable financial system are among the primary worries in the current cryptocurrency landscape. Hawkins urged policymakers, particularly in developing countries, to enhance financial regulation, raise awareness about the risks of trading cryptocurrencies, and explore alternatives such as central bank-operated digital payment systems to mitigate the dangers posed by unregulated cryptocurrencies. Without proper oversight and regulation, the growing prevalence of cryptocurrencies could lead to financial instability and create opportunities for illicit activities. The risks associated with cryptocurrencies, including volatility, lack of accountability, and potential for abuse, must be addressed to ensure a stable and secure financial environment for all users. As the cryptocurrency market continues to expand, it is crucial for policymakers to take proactive measures to safeguard the financial well-being of their citizens and protect against the dangers inherent in unregulated digital currencies.
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