The United Nations Conference on Trade and Development (UNCTAD) has issued a significant policy brief, No. 100, emphasizing the need for developing countries, including Kenya, to regulate and tax the cryptocurrency industry. UNCTAD’s recommendations come in response to the rising adoption of digital currencies and the associated risks to financial stability and consumer protection.
In this article, we will explore the key points of this policy brief, which was published in June, and delve into the implications of these recommendations for the cryptocurrency industry.
Cryptocurrency Adoption in Kenya and Developing Countries
UNCTAD has identified a rapid increase in the adoption of cryptocurrencies in developing countries like Kenya. This growing interest is attributed to several factors, including lower transaction fees offered by crypto exchanges, the speed of remittances using digital currencies, and increased internet access. Particularly during the COVID-19 pandemic, the high costs of traditional remittance services soared due to lockdown-related disruptions, making cryptocurrencies an attractive alternative.
Policy Recommendations from UNCTAD
The policy brief presents a set of recommendations to help developing countries address the challenges posed by the growing cryptocurrency industry. These recommendations are primarily focused on comprehensive financial regulation and consumer protection. Here are the key policy proposals:
(a) Ensuring Comprehensive Financial Regulation:
- Mandatory Registration: UNCTAD suggests requiring the mandatory registration of crypto-exchanges and digital wallets, making the use of cryptocurrencies less attractive through measures like entry fees and imposing financial transaction taxes on cryptocurrency trading.
- Ban on Regulated Financial Institutions: The policy brief recommends banning regulated financial institutions from holding stablecoins and cryptocurrencies or offering related products to their clients.
- Regulation of Decentralized Finance (DeFi): UNCTAD suggests that decentralized finance, which might not be entirely decentralized, should be subject to regulation, given its central management and ownership.
(b) Restricting or Prohibiting Cryptocurrency Advertising:
UNCTAD advises countries to restrict or prohibit the advertisement of crypto-exchanges and digital wallets in public spaces and on social media. This is to address the growing prevalence of disguised advertising and to protect consumers, particularly those with low levels of financial literacy.
(c) Creation of a Public Payment System:
The policy brief encourages the creation of a public payment system, such as a central bank digital currency (CBDC), to serve as a public good. It acknowledges the complexity of CBDCs and suggests exploring alternatives like fast retail payment systems to ensure safe, reliable, and affordable payment solutions.
Tailoring Policies for Specific National Contexts
UNCTAD recognizes that there is no one-size-fits-all policy response to the increasing use of cryptocurrencies in developing countries. It advises countries to tailor recommended policies according to their specific financial systems, regulatory infrastructures, and enforcement capacity. Policymakers are urged to adopt a forward-looking, holistic, and innovative approach to cryptocurrency regulation, collaborating with various stakeholders, including traditional financial regulatory authorities, telecommunications, advertising, cybersecurity, competition, and data protection authorities. Failing to take timely action may result in higher costs and greater challenges in the future.
Conclusion
UNCTAD’s Policy Brief No. 100 serves as an important call to action for developing countries, including Kenya, to regulate and tax the cryptocurrency industry. The recommendations provided by UNCTAD aim to strike a balance between harnessing the benefits of cryptocurrencies and mitigating the associated risks to financial stability and consumer protection. As the cryptocurrency ecosystem evolves, policymakers must adopt a proactive and adaptable approach to ensure a secure and stable financial landscape for their countries.
