The United Nation 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 on 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 developing countries are leading in the volume of P2P trading. It is difficult for goods and services to exchange easily across borders in Africa. As Frederick Bastiat opined that, 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[1]. 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[2].
Chainalysis’s recently issued global bitcoin adoption index, which showed how bitcoin is firmly entrenching itself in the nations that genuinely need it the most – not the ones that perceive it as a money-making opportunity in it, further reaffirms this truth[3]. This is grounded in Nigeria which is a poor country yet has dominated 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[4] 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, often accompanies by gross human rights violations. The continent loses tens of billions of dollars annually in capital flight[5]. The UNCTAD policy paper has ignored the cost of corruption to the livelihood of vulnerable people as well as corruption, money laundry, and illicit activities involving fiat money that has no traceability like cryptocurrencies.
Again, it is important for nations to have efficient capital control and revenue mobilization for development. However, it becomes a backward step if revenue mobilization is hit with setbacks including lavish spending by state officials, wasteful government expenditure, and siphoned by government officials which are deepening poverty in most developing countries, especially Africa. The retired justice of the Supreme Court, Olabode Rhode, opined that corruption has increased the cost of doing business, limited economic growth, impacted society negatively, ruins and tampered with processes and procedures while depriving the government of legal income in Nigeria[6].
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. You will need an unofficial middleman 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 public sectors[7]. 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[8], and in Uganda, four top officials have been arrested for inflating COVID-19 relief prices[9] to mention but 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 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 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. Therefore, it is rather advisable for developing countries to use blockchain technology as it provides digital identity and banking services to 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 a structure for crypto regulations when they need funds for education, health, and other sectors of their economies. 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 crypto-exchange and digital wallets 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 measure that erodes employment avenues for individuals in developing countries. Ironically, there are blockchain and cryptocurrency projects that are achieving UN SDG goals and others are using 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. In fact, 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 is 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 sum, 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.
Article by
Nathaniel Dwamena
[1] Useful Tulips. ‘LocalBitcoins and Paxful CombinedSub Saharan Africa’ retrieved from <https://www.usefultulips.org/combined_Sub%20Saharan%20Africa_Page.html>
[2] ibid
[3] Chainalysis. ‘The 2021 Geography of Cryptocurrency Report. Analysis of Geographic Trends in Cryptocurrency Adoption and Usage’.
[4] Transparency International. Corruption Perception Index 2021.
[5] Transparency International. ‘CPI 2021 for Sub-Sahara Africa: Amid Democratic Turbulence, Deep-Seated Corruption Exacerbated Threats to Freedoms’. Retrieved from https://www.transparency.org/en/news/cpi-2021-sub-saharan-africa-amid-democratic-turbulence-deep-seated-corruption Accessed 12th August 2022
[6] The Guardian. ‘Corruption Affecting Cost of Doing Business in Nigeria’ retrieved from < https://guardian.ng/business-services/corruption-affecting-cost-of-doing-business-in-nigeria/> Accessed on 12th August 2022
[7] Ghana Integrity of Public Services Survey 2021
[8] AP News, ‘South African court rules Zuma’s corruption case to continue’ retrieved from < https://apnews.com/article/africa-money-laundering-south-africa-jacob-zuma-87b8accb7f37accbe168ff8104c4bbcf>
[9] Voice of America. ‘Top Ugandan Officials Arrested in Covid-19 Purchasing Scandal’ retrieved from < https://www.voanews.com/a/science-health_coronavirus-outbreak_top-ugandan-officials-arrested-covid-19-purchasing-scandal/6187278.html> accessed on 12th August 2022
