The IMF Calls for Improved Regulation of Africa’s Growing Cryptocurrency Market

Written by Johnson Philip

The recent collapse of FTX, a major cryptocurrency exchange, and the resulting drop in the value of Bitcoin, Ethereum, and other major cryptocurrencies, has sparked calls for increased consumer protection and regulation in the cryptocurrency industry, according to the International Monetary Fund (IMF). In a report, the IMF noted that regulating a decentralized and volatile system is a challenge for many governments, requiring a balance between minimizing risk and fostering innovation.

Sub-Saharan Africa has relatively low levels of formal regulation for cryptocurrencies, with only one-quarter of countries in the region have established regulations. However, two-thirds of these countries have implemented some restrictions, and six countries – Cameroon, Ethiopia, Lesotho, Sierra Leone, Tanzania, and the Republic of Congo – have banned cryptocurrencies outright. Additionally, Zimbabwe has ordered all banks to stop processing cryptocurrency transactions, and Liberia has directed a local cryptocurrency startup to halt operations (effectively implementing a ban). Approximately 20% of sub-Saharan African countries have banned cryptocurrencies.

Despite being one of the fastest-growing cryptocurrency markets in the world, with monthly transactions reaching a peak of $20 billion in mid-2021, according to Chainalysis, sub-Saharan Africa is still the smallest market for cryptocurrencies. Kenya, Nigeria, and South Africa have the region’s highest number of cryptocurrency users. Many people in these countries use cryptocurrencies for commercial payments, but their volatility makes them an unreliable store of value.

Policymakers are also concerned that cryptocurrencies could be used to illegally transfer funds out of the region and to bypass local rules intended to prevent capital outflows. The widespread use of cryptocurrencies could also undermine the effectiveness of the monetary policy, posing risks to financial and macroeconomic stability. These risks are even greater if cryptocurrencies are adopted as legal tender, as the Central African Republic recently did. If the government accepts cryptocurrencies as a 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. This decision has caused tension with the Bank of Central African States (BEAC) and the Economic and Monetary Community of Central Africa (CEMAC), of which the Central African Republic is a member. The BEAC’s banking sector supervisory body, the Central Africa Banking Commission, has banned the use of cryptocurrencies for financial transactions in the CEMAC region.

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