by Jai Bifulco, Chief Commercial Officer, Kinesis Money
According to their 2030 Sustainable Development Goals (SDGs), the United Nations is committed to promoting “sustained, inclusive and sustainable economic growth”, pledging that “no one will be left behind” and endeavouring to “reach the furthest behind first”.
It is curious, then, that the UN has raised its concerns on cryptocurrencies, which have clear benefits to financial inclusion. In its recent report, the UN’s Conference on Trade and Development (UNCTAD) called for a halt to the expansion of cryptocurrencies in developing nations specifically.
For many, this would have come as a surprise. But the UN has a valid point. Though cryptocurrencies may well be a better option than many fiat currencies, they should not be mistaken for a source of stability. Especially in emerging markets, cryptocurrencies could lure users into a false sense of security and catch vulnerable people on the wrong side of volatility.
While a risk-averse approach to sustainable development fails to consider the potential long-term opportunities such nations could leverage from the extremely diverse, nuanced digital asset market, distinctions between what is and isn’t ‘stable’ should be considered. There are many benefits of integrating digital assets to help create fairer, innovative, and more inclusive monetary systems.
Of course, the UN is not alone in its disapproval. The New York Times recently published this headline about El Salvador: A Poor Country Made Bitcoin a National Currency. The Bet Isn’t Paying Off.
It is true that Bitcoin doesn’t provide a level of stability that a developing nation should seek, but this outlook ignores important nuances. Emerging economies can profit from the crypto economy while also ensuring economic stability by incorporating digital assets like stablecoins – specifically those pegged to a solid foundation in the form of a fully redeemable physical asset such as gold.
Unlike Bitcoin – and other unpegged cryptocurrencies – this will allow developing nations to engage in an asset class that could present a fairer, more inclusive way of storing and exchanging wealth and protect against currency inflation and instability.
The implications of a gold-backed economy are particularly promising for countries prone to hyperinflation. Take Zimbabwe. After facing world-record year-over-year inflation rates of 89.7 sextillion percent in 2008, the country recently started using gold coins as legal tender. Since their official introduction on July 25, annual inflation has already dropped by more than 100 percentage points.
There’s also an exciting use case for bridging gaps in access to banking and financial freedom in countries such as Indonesia. In partnership with Kinesis, the Indonesian government has integrated gold-backed, Sharia-compliant currency at the governmental level, providing the country’s massively unbanked and underbanked population with access to physically-backed digital gold.
Further, the UN report draws attention to the fact that there is still significant work to be done by regulators around the world. If approached correctly, improved oversight and transparency would create a virtuous cycle of stability – driving greater institutional backing for cryptocurrencies and further stabilising the global market.
In order to “reach the furthest behind first”, global organisations should be encouraging more technical research into digital assets and sparking international dialogue around the many positive opportunities inherent in the crypto market – and not scaring away the nations that stand to benefit the most.