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According to UNCTAD, digital currencies pose a unique challenge to developing economies. Before the war in Ukraine, developing countries needed around $3 trillion/year from 2020 to 2025 – to close their financing gaps. 

Financing for development requires a two-pronged approach. One, developing countries need to mobilize additional resources from several domains: international- domestic, public-private, and second, they need to tackle financial leakages.

Two crucial channels drain resources from developing countries: illicit financial flows and persistent net financial outflows, and digital currencies are one of the channels that could erode tax revenues, shrinking developing countries’ fiscal space and their capacity to provide essential public services and infrastructure.

While an estimate for Bitcoin suggests that only a small share of the currency's transactions (less than 10%) could be attributed to criminal activity in 2020. But from a developing economy's point of view, even a small erosion of the tax base could pose a serious challenge. 

For example: In 2021, close to US$500 billion was lost in tax revenues worldwide due to cross-border tax abuse by multinational enterprises and individuals. These lost resources harm low-income countries the most, as they have fewer options to mobilize resources.

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