IMF urges better regulation of Africa’s growing crypto market


. Kenya, Nigeria, S’Africa highest users

The International Monetary Fund (IMF) has called for better regulation of the crypto market to protect consumers especially in sub-Saharan Africa, where Kenya, Nigeria, and South Africa are listed at the highest users.

This is particularly important because only about 20% of sub-Saharan Africa countries, including Nigeria, have banned crypto assets.

The call follows the collapse of the world’s third largest crypto exchange FTX, and subsequent plunge in the prices of Bitcoin, Ethereum, and other major crypto assets.

The IMFBlog, titled: “Africa’s Growing Crypto Market Needs Better Regulations,” on Tuesday noted that “Regulating a highly volatile and decentralized system remains a challenge for most governments, requiring a balance between minimizing risk and maximizing innovation.”

Accordingly, the Central Bank of Nigeria (CBN), in a letter addressed to banks and other financial institutions on February 5, 2021, specifically prohibited them from dealing in cryptocurrencies and facilitating payment for cryptocurrency exchanges.

The CBN further instructed the lenders to identify individuals or entities who transact in cryptocurrency or operate cryptocurrency exchanges and close the accounts of such persons or entities.

To make good its threat of sanction, the CBN in April slammed six banks with N1.314billion fine for flouting the regulation.

To discourage the use of crypto currencies, the apex bank on October 25, 2021, launched its brand of the Central Bank Digital Currency (CBDC) — the eNaira.

Regulating a highly volatile and decentralized system remains a challenge for most governments, requiring a balance between minimizing risk and maximizing innovation.

Crypto restrictions

The IMFBlog said two-thirds of countries in Africa have implemented some restrictions. Specifically, six countries—Cameroon, Ethiopia, Lesotho, Sierra Leone, Tanzania, and the Republic of Congo have banned crypto.

“Zimbabwe has ordered all banks to stop processing transactions and Liberia directed a local crypto startup to cease operations (implicit bans).”

Citing Chainalysis, the blog listed Africa as one of the fastest-growing crypto markets in the world, but remains the smallest, with crypto transactions peaking at $20 billion per month in mid-2021.

“Kenya, Nigeria, and South Africa have the highest number of users in the region. Many people use crypto assets for commercial payments, but their volatility makes them unsuitable as a store of value.

“Policymakers are also worried that cryptocurrencies can be used to transfer funds illegally out of the region and to circumvent local rules to prevent capital outflows.

“Widespread use of crypto could also undermine the effectiveness of monetary policy, creating risks for financial and macroeconomic stability.

“The risks are that much greater if crypto is adopted as legal tender—as the Central African Republic recently did. If crypto assets are held or accepted by the government as means of payment, it could put public finances at risk.

“The Central African Republic is the first country in Africa, and the second in the world after El Salvador to designate Bitcoin as a legal tender.

“The measure has put the country at odds with the Bank of Central African States (BEAC)—the regional central bank that serves the Economic and Monetary Community of Central Africa (CEMAC), which the Central African Republic is a member of—and violates the CEMAC Treaty.

“BEAC’s banking sector supervisory body—Central Africa’s Banking Commission—has banned the use of crypto for financial transactions in the CEMAC region,” the Blog said.

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