India’s crypto ownership is the seventh highest in the world and about 7.3 per cent of Indian population owned digital currency (in the form of cryptocurrencies) in 2021, revealed an UNCTAD report.
In a list of top 20 economies ranked for digital currency ownership as a share of population as of 2021, India ranked one notch below the United States (8.3 per cent).
Ukraine topped the list with 12.7 per cent, followed by Russia and Venezuela, with 11.9 per cent and 10.3 per cent, respectively. Singapore (9.4 per cent) and Kenya (8.5 per cent) were above the United States in the pecking order.
As many as 15 of the top 20 economies listed were developing and emerging market economies. UNCTAD report highlighted that post Covid-19, there has been an exponential increase in use of cryptocurrencies globally.
The cryptocurrency ecosystem expanded by 2,300 per cent between September 2019 and June 2021, particularly in developing countries, according to UNCTAD.
5-point action plan
Meanwhile, UNCTAD has in its latest policy brief — published few days back—recommended five policy actions to curb the expansion of cryptocurrencies in developing countries:
These recommended policy actions are — ensure comprehensive financial regulation of cryptocurrencies through regulating crypto exchanges, digital wallets and decentralised finance, and banning regulated financial institutions from holding cryptocurrencies (including stablecoins) or offering related products to clients; restrict advertisements related to cryptocurrencies, as for other high-risk financial assets; provide a safe, reliable and affordable public payment system adapted to the digital era; agree and implement global tax coordination regarding cryptocurrency tax treatments, regulation and information sharing and redesign capital controls to take account of the decentralised, border-less and pseudonymous features of cryptocurrencies.
The latest policy brief noted that cryptocurrencies have become a new channel undermining domestic resource mobilisation in developing countries. While cryptocurrencies can facilitate remittances, they may also enable tax evasion and avoidance through illicit flows, just as if to a tax haven where ownership is not easily identifiable.
In this way, cryptocurrencies may also curb the effectiveness of capital controls, a key instrument for developing countries to preserve their policy space and macroeconomic stability, UNCTAD has said.
According to UNCTAD, there were two reasons for the increased use of cryptocurrencies. First, the use of cryptocurrencies was an attractive channel, in terms of price and speed, through which to send remittances. During the pandemic, the already high costs of traditional remittance services rose even higher during lockdown periods due to related disruptions, the report added.
Second, cryptocurrencies, as part of financial investments and speculation, are mainly held by middle-income individuals in developing countries and, particularly in countries facing currency depreciation and rising inflation (triggered or accentuated by the Covid-19 crisis), cryptocurrencies have been perceived as a way to protect household savings.
The UN report also said cryptocurrencies, if left unchecked, could become a widespread means of payment and even replace domestic currencies unofficially.
On its part, the Reserve Bank of India (RBI) had already warned that cryptocurrencies are a clear danger and anything that derives value based on make-believe, without any underlying, is just speculation under a sophisticated name.
It maybe recalled that RBI Governor Shaktikanta Das had on June 30 said, “ We must be mindful of the emerging risks on the horizon. Cryptocurrencies are a clear danger. Anything that derives value based on make-believe, without any underlying, is just speculation under a sophisticated name,” R
Although private digital currencies have rewarded some individuals and institutions, they are an unstable financial asset that can bring social risks and costs, UNCTAD has warned.
The benefits to some are overshadowed by the threats they pose to financial stability, domestic resource mobilization, and the security of monetary systems, it added.
WHAT ARE CRYPTOs?
Cryptocurrencies are an alternative form of payment. Transactions are done digitally through encrypted technology known as blockchain. The use of cryptocurrency rose globally at an unprecedented rate during the pandemic, reinforcing a trend that was already in motion. Some 19,000 are currently in existence.
UNCTAD has released three policy briefs that delve into these risks and costs, including the threats cryptocurrencies bring to financial stability, domestic resource mobilisation and the security of monetary systems.