Decrypting crypto for human development in Asia and the Pacific in 2025
January 19, 2025
While digital currencies might not be part of the daily lexicon of development professionals, as yet, it is crucial that we learn to navigate the world of digital currencies to figure out how they can positively impact human development. Understanding the fast-evolving potential of cryptocurrencies, central bank digital currencies (CBDCs), and stablecoins is something we need to expand our understanding of, if to leverage them optimally in diverse development financing contexts, that are geared to reaching the ambition of the Sustainable Development Goals (SDGs). Here are a few critical questions that, together with our partners, we can and must explore in 2025.
What potential do cryptocurrencies offer as SDG investment tools?
Cryptocurrencies like Bitcoin and Ethereum have gained traction as alternative investments with a market peak of $3.91 trillion last December. Imagine channeling even a fraction of that towards human development (education, health, skills, jobs and more). Yet while crypto offers low-cost, instantaneous ‘crossing-all-borders’ transactions that can reach unbanked populations and create new economic opportunities, the sector is also highly volatile and susceptible to illicit activity. To leverage cryptocurrencies for inclusive and sustainable development means we must explore mechanisms that mitigate the risks while harnessing and directing the benefits. This may require the creation of a (non-traditional) regulatory framework that allows cryptocurrencies to contribute positively to development without compromising a country’s or households’ financial stability. How can development partners help set up cryptocurrency fund mechanisms, with the necessary safeguards, that support start-up ventures ready to transact in the same?
How can CBDCs enhance financial inclusion while promoting transparency?
Central Bank Digital Currencies (CBDCs) are digital versions of traditional currencies, backed by government authorities. In Asia and the Pacific, Central Banks in China, India, Indonesia, Thailand, Singapore, Japan and the Republic of Korea are exploring and test implementing CBDCs. By providing a secure digital alternative to cash, CBDCs can help integrate previously unbanked populations into the formal financial system, promoting economic inclusion and broadening access to financial services. Furthermore, the traceability of CBDC transactions that use blockchains, offer an opportunity to enhance accountability and reduce corruption. What regulatory and oversight mechanisms are necessary to ensure CBDCs fulfill these roles effectively, and how can UNDP support national institutions create and strengthen the transacting and risk management capabilities and enabling environment needed for this?
What role can digital currencies, particularly stablecoins, play in safeguarding livelihoods during crises?
Stablecoins are digital currencies tied to stable assets like fiat currencies, providing a less volatile option than traditional cryptocurrencies. They can be integrated into digital ID and payment systems, ensuring secure transactions for the unbanked and underbanked. During economic crises or conflicts, digital currencies can maintain liquidity and support vulnerable communities' livelihoods. Are we ready to provide the analytics, good practices, and share lessons learnt, to see in what local contexts we can safely promote their adoption as an additional avenue to enhance financial resilience in recovering communities?
How to address the environmental and social impact of cryptocurrencies?
The environmental footprint of cryptocurrency mining is significant, with high energy consumption and e-waste production posing substantial challenges. Some cryptocurrency operations are estimated to consume more energy per electricity demand than entire countries like Thailand or Viet Nam. Water intensity can stress already weak water tables in many parts of the region. Sustainable practices must therefore be integrated into cryptocurrency development to minimize ecological impact, but this requires a better understanding of the strategies and technologies that can be employed to ensure that the expansion of digital finance does not come at the expense of environmental sustainability?
Can digital currencies contribute to sovereign debt management and SDG financing?
The potential use of digital currencies in sovereign bonds and debt restructuring is still far from clear. While some countries are exploring cryptocurrencies as stores of value, their speculative nature remains a barrier to large-scale investment. Comprehensive macroeconomic analysis and matured regulatory frameworks, with knowledge-sharing across countries and corporations, are crucial to understanding how digital currencies might be woven into financing strategies to leverage more financing for the SDGs.
The way forward
As digital currencies reshape finance, and with many countries in the Asia-Pacific moving to take them on as part of their resource equation, we must explore how this suite of digital currencies can advance human development. If digital currencies offer the opportunity to scale and diversify SDG financing as well as improve the efficiency and transparency of financial transactions, this is not an opportunity to be missed. UNDP is already working to support the expansion of blockchain technologies to further decentralize finance, better track funding outcomes and to reduce corruption.