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    IMF: Africa's Growing Crypto Market Needs Better Regulations

    Tanya Sharma
    Tanya Sharma
    Published on November 25, 2022 5:32 PM

    Updated on January 10, 2023 2:20 PM

    The demise of FTX is one of the reasons why countries in the area believe that the risks of crypto assets are obvious and that it is time to regulate.
    IMF: Africa's Growing Crypto Market Needs Better Regulations
    Source: Head Topics

    Africa one of the fastest-growing crypto market to tighten rules

    According to Chainalysis, Africa has one of the fastest-growing crypto marketplaces in the world, but it is still the smallest, with crypto transactions topping at $20 billion per month in mid-2021.

    Africa’s cryptocurrency market in a global context : 

    Source: Foresight Africa

    The region's most active users are in Kenya, Nigeria, and South Africa. Many people utilise crypto assets for business payments, but because of their volatility, they are unsuitable as a store of value.

    Policymakers are also concerned that cryptocurrencies would be used to unlawfully transfer funds out of the region and to avoid local restrictions designed to prevent capital outflows.

    The widespread usage of cryptocurrency may also weaken the effectiveness of monetary policy, posing threats to financial and macroeconomic stability.

    The growing role of crypto for remittance payments in African region: 

     

    Source: Foresight Africa

    The collapse of FTX

    The collapse of the world's third-largest crypto exchange, FTX, followed by a drop in the prices of Bitcoin, Ethereum, and other critical crypto assets, has reignited calls for better consumer protection and crypto sector regulation.

    Most governments need help regulating a highly volatile and decentralized sector, which necessitates striking a balance between avoiding risk and fostering innovation.

    Only one-quarter of Sub-Saharan African countries have formal crypto regulations. However, two-thirds have imposed certain restrictions, while six nations have prohibited crypto: Cameroon, Ethiopia, Lesotho, Sierra Leone, Tanzania, and the Republic of Congo.

    Zimbabwe has ordered all banks to halt processing transactions, and Liberia has ordered the closure of a local cryptocurrency firm (implicit bans).

    The most users in the region are in Kenya, Nigeria, and South Africa. According to statistics from Chainalysis, the value of the African crypto market surged by more than 1,200% between

    July 2020 and June 2021, with significant adoption in Kenya, South Africa, Nigeria, and Tanzania.

    The IMF urged the African crypto industry to undergo greater regulation

    The monetary fund noted the collapse of FTX and its impact on cryptocurrency prices as one of the reasons why countries in the area should embrace regulation, saying that it is "prompting renewed calls for better consumer protection and regulation of the crypto business."

    The authors contend that to strike a balance between reducing risk and fostering innovation, "risks from crypto assets are clear" and "it's time to regulate."

    The article claims that based on the October 2022 Regional Economic Outlook for Sub-Saharan Africa,

    "If cryptocurrency is accepted as legal cash, risks are significantly higher."

    If governments adopt cryptocurrency as a form of payment, that will represent a risk to the public budget.

    The article also stated:

    "Policymakers are also concerned that cryptocurrencies could be used to evade regional regulations intended to stop capital outflows and transfer money illegally out of the area." 

    Their publication also stated that widespread crypto use could jeopardize the efficiency of monetary policy, endangering the financial system's stability and the macroeconomy.

    Ghana is working with a central bank digital currency (CBDC)

    According to Kwame Oppong, a Bank of Ghana officer, the country's strategy aims to promote financial inclusion.

    Ghana has the potential to reach crypto adoption levels comparable to Kenya and Nigeria, which placed 11th and 19th in Chainalysis' Global Crypto Adoption Index, respectively.