7.3% Of India Population Owned Cryptocurrencies In 2021: UNCTAD Report

7.3% of India’s population was possessing digital currency or cryptocurrencies in 2021, according to UNCTAD’s report.

According to the UNCTAD’s “All that glitters is not gold: The high cost of leaving cryptocurrencies unregulated” report, 15 of 20 economies were developing countries and emerging markets whose populations possess digital currencies in 2021.

Of this, Ukraine’s population had the highest digital currency ownership with 12.7 % followed by Russia with 11.9 %, Venezuela with 10.3%, Singapore with 9.4 % and Kenya 8.5%. 

The report informed that the cryptocurrency ecosystem expanded globally by 2300% between September 2019 and June 2021 especially in developing countries. 

Cryptocurrency–A Cheaper And Swift Alternative To Traditional Money

As per the report, there were 450 crypto exchanges operating across the globe in 2021. In May last year, crypto exchanges clocked worth $500 Bn daily trading which is equivalent to the maximum daily trading recorded at the American stock exchange Nasdaq in January 2022.

Some of the prime reasons for the increased uptake of cryptocurrencies by developing countries are that cryptocurrencies were initially considered a cheap and swift alternative 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 said. 

Add to that, cryptocurrencies are primarily held by middle-class people in developing countries, particularly the ones that are facing currency depreciation and rising inflation. In such nations, investing in cryptocurrencies was considered a method to preserve household savings.

Risks Associated With Cryptocurrencies 

According to the report, cryptocurrencies can pose several risks and problems to developing countries. Firstly, trading and holding cryptocurrencies can result in financial instability risks in emerging markets and developing nations. 

If crypto prices decline steeply, then monetary authorities (of developing countries) would have to step in to restore financial stability. Importantly, in developing countries, the uptake of cryptocurrencies can also create a new channel for illegal financial flows.

Secondly, cryptocurrencies decline the actual value of capital controls in developing countries.

“The use of cryptocurrencies undermines the effectiveness of capital controls, an essential instrument in developing countries with which to curb the build-up of macroeconomic and financial vulnerabilities, as well as to increase policy space,” the report stated.

If developing countries do not keep a tab on cryptocurrencies, then they can widely become an alternative mode of payment and also, replace the domestic currencies. Add to that, stablecoins pose even more threats to developing countries that have not met the demand for reserve currencies. 

Recognising these risks, as of November 2021, 41 countries had either asked their banks and other financial institutions to cease dealing in cryptocurrencies or banned crypto-exchanges that offer crypto trading services to people and organisations.

In addition, nine developing countries–Algeria, Bangladesh, China, Egypt, Iraq, Morocco, Nepal, Qatar and Tunisia have already banned cryptocurrencies in their countries. On the other hand, some countries including India have begun levying taxes on capital gains from cryptocurrencies.

At present, India is imposing a 30% tax on income generated from the transfer of digital assets especially cryptocurrencies, 1% TDS imposed on the crypto transactions, losses incurred while trading digital assets are not offset against any type of income and gifting digital assets to others is also taxable for the receiver.

Ways To Curb Crypto Ecosystem In India & Other Developing Countries

As per the report, developing countries need to take stringent measures to control the growth of the cryptocurrency ecosystem in their regions.

The report suggests that developing countries should ask crypto-exchanges and digital wallets to make mandatory registration with the respective authorities. They have to introduce practices and policies to make trading in cryptocurrencies less attractive such as charging entry fees from individuals and organisations to join crypto-exchanges and digital wallets and also, imposing taxes on cryptocurrency trading.

It also said that developing nations should restrict crypto-exchanges and allied digital wallets from advertising in public spaces and social media platforms.

“This new type of virtual, and often disguised, advertisement requires policymakers to expand the scope of regulation beyond traditional media. This is an urgent need in terms of consumer protection in countries with low levels of financial literacy, as even limited exposure to cryptocurrencies may lead to significant losses,” the report said.

It was further recommended that developing countries should build a public payment system such as a central bank digital currency for crypto users.

“In the light of the regulatory and technological complexity of central bank digital currencies and the urgent need to provide safe, reliable and affordable payment systems, authorities could also examine other possibilities, including fast retail payment systems,” the report added.