The United Nations Conference on Trade and Development (UNCTAD) has weighed in on the rally and has called on the regulation of cryptocurrency in a recent policy paper No. 100 – All that glitters is not gold: The high cost of leaving cryptocurrencies unregulated. What is problematic is the masquerading nature of the policy brief that purport to safeguard developing countries coupled with erroneous justifications.
UNCTAD seeks to help developing nations get more equitable and efficient access to the advantages of a globalized economy. However, a critical look at policy brief No. 100 can confirm that it has little in the interest of developing countries but seeks to champion IMF’s agenda on central bank digital currency (CBDC) as being an alternative to cryptocurrency.
This write-up would analyze the justifications of the policy brief with a focus on Africa and whether UNCTAD’s three recommendations would be in the interest of the African people.
Downplaying Reasons for Cryptocurrencies Adoption in Developing Countries
The UNCTAD Policy Brief No. 100 associates the exponential increase in the use of cryptocurrencies in developing countries with the COVID-19 pandemic. First, the increase in cryptocurrencies cannot all be associated with COVID-19 as there is an intrinsic value that cryptocurrencies offer to individuals in Africa.
It is not by accident that the developing countries are leading in the volume of P2P trading. It is difficult for goods and services to exchange easily across the border in Africa.
As Frederick Bastiat opined, if goods and services do not cross borders, then soldiers will. Cryptocurrencies are providing a great platform that is encouraging innovation and trade easily among Africans.
With the African continental free trade agreement luck in the implementation stage, blockchain and its native cryptocurrencies have provided a trustless system devoid of third parties and intermediaries and it is serving the need of developing nations better.
Data from analytics company UsefulTulips shows that in terms of global peer-to-peer bitcoin trade volume, Africa has surpassed all other continents.
The continent overtook North America, which had held the top spot previously, trading $17,540,134 worth of bitcoin on peer-to-peer platforms, with $18,073,777 in LocalBitcoins and Paxful.
It is therefore not by accident for Sub-Sahara Africa, North America, Pacific Asia, and Latin America respectively to be leading in peer-to-pear in the last 7 days and ahead of developed Europe.
Chainalysis’s recently issued global bitcoin adoption index, which showed how bitcoin is firmly entrenching itself in the nations who genuinely need it the most – not the ones that perceive it as a money-making opportunity in it, further reaffirms this truth.
This is grounded in Nigeria though being a poor country dominant leads peer-to-peer transactions ahead of Kenya and Ghana and even African countries whose economic development is better than Nigeria in terms of GDP.
Financial Instability Risk and Cost to Developing Countries
Under the watch of central banks, there have been bank collapses, money laundry, and corruption which erode the fortunes of several household incomes.
It is never the case that it is risk-free with traditional banking and regulated financial institutions. Therefore, regulations do not translate into safeguarding individuals.
The 2021 Corruption Perception Index by Transparency International revealed that 80 percent of countries in Africa have stagnated in the last 10 years. It mentions also that grand corruption is the biggest threat thus systemic corruption involving high-level public officials and vast sums of money is often accompanied by gross human rights violations. The continent loses tens of billions of dollars annually in capital flight.
The UNCTAD policy paper has ignored the cost of corruption to the livelihood of vulnerable people and corruption, money laundry, and illicit activities involving fiat money that has no traceability like cryptocurrency.
Again, nations need to have efficient capital control and mobilize revenue for development. However, it becomes a backward step if revenue mobilization is hit with setbacks including lavishly spending by a state official, wasteful government expenditure, and siphoned by government officials who are depending on poverty in most developing countries, especially in Africa.
The retired justice of the Supreme Court, Olabode Rhode, opined that corruption has increased the cost of doing business, limited economic growth, impact society negatively, ruins and tampers with processes and procedures while depriving the government of legal income in Nigeria.
Also, UNCTAD ignored the fact that sovereignty emanates from the people, and on any day, the vulnerable people would have the blessing of John Locke not to hold their share of obligation once government breaches the social contract.
One will need an unofficial middle man for every service including business registration, license, filing taxes, and other government services. The 2021 Ghana Integrity of Public Services Survey revealed that about Gh5 billion cedis ($63.9 million) were paid as bribes in the public sectors.
What is worrying is that officials in the public sector were leading in receiving bribes in exchange for facilitating government services. This situation is not unique to Ghana in the Sub-region; in South Africa – Former President, Jacob Zuma is embattling with corruption, in Uganda, four top officials have been arrested for inflating COVID-19 relief prices to mention but a few.
How does the state maintain its sovereignty if it does not check the actions of officials entrusted with public positions and the reoccurring incident involving a breach of public confidence? Cryptocurrencies provide a solution and empower the vulnerable and not to compete for state sovereignty
Contradictory Recommendation
The three recommendations by the UNCTAD reveal the masquerading veil of promoting IMF’s agenda for CBDC and its imposition on developing countries. The UNCTAD recommendations are debunked below:
(1) Ensuring comprehensive financial regulation
It suffices to say that the UNCTAD recommendation has lost touch with reality and would overburden developing countries. First, increasing regulation for cryptocurrencies should not be a priority for now as increasing regulations will burden the expenditure of developing countries to spend on technologies to facilitate the near impossible venture of regulating cryptocurrencies.
This is because crypto exchanges are of two kinds; centralized exchanges (CEX) and decentralized exchanges (DEX).
It would be possible to regulate CEX (Binance, Gemini, Coinbase, Bit Afrika, etc) but not the DEX (the swaps). Therefore, developing countries should use blockchain technology as it provides digital identity and banking for the unbanked population which the existing financial institution and the plethora of regulations have not been able to achieve.
It is contradictory to burden developing countries to build the structures for crypto regulations when they need funds for education, health, and other sectors in various economies in the developing world. Also, you cannot suggest regulation of crypto exchanges while imposing entry fees on individuals as well as transactional taxes.
The UNCTAD can use taxes imposed on mobile money in Uganda, Kenya, and Ghana as a case study to assess the feasibility of its recommendation on taxing transactions. It would be pointless to regulate exchanges when no one is utilizing them due to high entry fees and transactional taxes.
(2) Restricting or prohibiting the advertisement of crypto-exchange and digital wallet in public spaces and social media.
This stringent recommendation would do no good as individuals in developing countries are benefiting from the value chain of advertisement. Revenue generated by mainstream media goes a long way to employ as well as provide income sources for individuals.
There is no better way of reducing poverty than providing sustainable jobs in the face of rising unemployment amid economic difficulties post COVID-19 pandemic. Therefore, it is contradictory to want to reduce poverty and safeguard household income in developing countries while imposing stringent and prohibitory measures that erode employment avenues for individuals in developing countries.
Ironically, there are blockchain and cryptocurrency projects that are achieving UN SDG goals and others are using of proof of stake mechanism that is environmentally friendly. The Cardano blockchain, for instance, is transforming livelihoods as well as funding social impact projects in Africa.
(3) Creating a public payment system to serve as a public good such as central bank digital currency (CBDC).
It is erroneous to suggest CDBC as being a better public payment system. The UNCTAD confuses what is public as emanating from a public office.
An effective public good like the proposed payment system must have two features thus (1) non-excludable and (2) non-rivalrous.
If there is any system that demonstrates these two features properly then it would be a payment system on blockchain. Therefore, cryptocurrencies like Bitcoin, Cardano, and Ethereum are non-excludable, decentralized, and transparent. There are no barriers or long bureaucracies to usage or purport to exclude others from usage. Secondly, the use of cryptocurrency by one person does not rival the other.
Everyone can enjoy the use of crypto at the same time and one’s usage does not stop others from using the same. Unlike the CBDC which has a centralized point of control and decision making, and non-participatory in its orientation, cryptocurrencies are designed to empower ordinary people and provide power to the marginalized to participate freely in an ecosystem.
In summary, the UNCTAD policy brief No 100 does not reflect the needs and the interest of the people in developing countries and the recommendations are purporting to downplay the positive impact of cryptocurrencies while hiding the downside of CBDC.
By: Nathaniel Dwamena
Director, Center for Coin Liberty
Institute for Liberty and Policy Innovation- ILAPI
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