Cryptocurrency Adoption in Emerging Economies: A Boon or a Bane?

An abstract, vibrant city skyline of an emerging economy, livened with digital elements representing cryptocurrencies, giving off a sense of mysticism and volatility. Muted sunlight casts an ambiguous mood indicating both opportunity and uncertainty, depicting the struggle between innovation, risk, and regulatory control. The city is richly colored in warm, engaging hues, suggesting economic heat, while symbols of regulation hold a cool, calming contrast.

Emerging economies have become hotbeds for cryptocurrency adoption due primarily to unstable fiat currencies and limited banking access. Few of the top 20 cryptocurrency-adopting jurisdictions are from the developed world, with a Chainalysis data revealing Vietnam, Brazil and India, among the majority, according to a study published by the Bank for International Settlements (BIS).

However, the allure of cryptocurrencies in these countries isn’t all it’s hyped up to be. Despite claims of insulating people from inflation and providing an affordable payment alternative, the study asserted that cryptocurrency’s appeal is largely “illusory”. While it’s become a prominent method for outward remittance, cryptocurrencies have been linked to abrupt swings in capital flows, a worrying sign for central banks, who are tasked with preserving financial stability.

The BIS study further elaborated: Cryptocurrencies have “amplified financial risks” rather than mitigating them in less developed economies. However, instead of supporting an outright ban, the authors suggested regulation as a preferable solution. Enforcement of a ban would not only be challenging but it also runs the risk of stalling innovation.

While critics may regard these digital assets with skepticism, the technology underlying these assets offers potential. Therefore, the report proposed that regulations should aim to “channel innovation into socially useful directions.”

The report went on to state that the increasing popularity of exchange-traded funds (ETFs) based on cryptocurrencies could further complicate matters. This development could potentially expose a wider demographic without specialist finance knowledge to the volatile cryptocurrency market. The world’s biggest asset manager, BlackRock, for instance, filed to operate an ETF based on the spot price of Bitcoin in the U.S. in June.

This skeptical view of global organizations towards cryptocurrencies is not new. The BIS had previously claimed that cryptocurrencies couldn’t serve as money due to “inherent flaws”, and the United Nations’ development arm suggested that emerging economies should impose widespread restrictions to mitigate risks to tax collection and monetary policy.

This study actively reinforces the sentiment shared by key U.S. and International Monetary Fund officials who, at a recent G20 roundtable, advocated for a similar regulation-over-ban approach. Altogether, this represents a significant divergence in policy recommendations – pushing for careful regulation and oversight instead of outright prohibition. The unfolding scene will undoubtedly be something intriguing to observe, as the struggle between innovation, risk, and regulatory control unfolds in the disruptive world of cryptocurrency.

Source: Coindesk

Sponsored ad