Yesterday the United Nations Conference on Trade and Development (UNCTAD) published a third paper warning of the risks of cryptocurrencies. On this occasion, the concern is that cryptocurrencies are used to funnel money out of developing economies, starving the countries of investment. Previous papers highlighted monetary sovereignty and financial stability risks.
The report refers to crypto as ‘tax havens version 2.0’ because tokens have pseudonymity and there’s insufficient oversight if transactions go through unregulated exchanges. In contrast, funneling money to conventional tax havens usually means going through banks that act as a third-party tax reporting system.
Developing countries often rely on capital controls to prevent capital flight which is tricky to block with crypto. It points to the use of Bitcoin in China to circumvent controls before the country’s ban. Significant capital outflows can impact the tax base rendering a country more reliant on debt markets which may not be sustainable.
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