The IMF has identified the need for better regulatory efforts for the massively-growing cryptocurrency industry in Africa.
The International Monetary Fund (IMF) recently highlighted the growing demand for better cryptocurrency regulatory efforts in Africa as the continent witnessed a massive surge in adoption amongst retail and institutional investors.
The financial agency cited the recent FTX collapse to highlight the risks of exposing investors to a largely unregulated cryptocurrency market. Since there appears to be a global dearth of proper regulation, the African cryptocurrency scene appears to be lacking the most, the IMF noted in a blog post published Tuesday.
Despite the surge in adoption, most African countries have not wholly welcomed the cryptocurrency industry, leading to a lack of oversight and subsequent unregulated exposure for investors. The IMF mentioned that the FTX collapse, which triggered a market-wide bloodbath for several crypto assets, has further underlined the need for better supervision to protect investors.
“Regulating a highly volatile and decentralized system remains a challenge for most governments, requiring a balance between minimizing risk and maximizing innovation,” the article says. The IMF also noted that only a fourth of sub-Saharan African countries have a definite regulatory structure for cryptocurrencies.
On the other hand, two-thirds of these countries have restricted cryptocurrencies and cryptocurrency trading in some way, per data from an IMF chart. Meanwhile, up to six African countries have banned cryptocurrencies. These include Sierra Leone, Tanzania, The Republic of Congo, Cameroon, Ethiopia, and Lesotho.
Countries such as Zimbabwe and Nigeria – the most populous black nation – have banned regulated banks from processing cryptocurrency transactions. The Central Bank of Liberia ordered a local crypto startup to desist from promoting its digital asset products in May last year, noting that it is illegal in the country.
In April 2021, the Central Bank of Nigeria placed a fine of NGN1.31 billion ($2.9M) on 6 banks within the country for processing cryptocurrency transactions despite a previous order banning the action. The Central Bank has also ordered banks to close accounts that engage in crypto transactions.
Crypto Bans Have not Damped African Investors’ Interest.
These bans have done little to stunt adoption. Chainalysis recently noted that Africa remains one of the fastest-growing cryptocurrency markets globally, as crypto transactions within the continent reached a high of $20 billion per month in mid-2021, with Nigeria, Kenya, and South Africa contributing the most.
The bans have, however, forced local investors to resort to black market trades as they seek to circumvent them, exposing investors to more damage. In October 2021, Chainalysis revealed that Africa processed the most P2P transactions for any region. Most individuals also utilize cryptocurrencies for remittances and commercial transactions, Chainalysis said.
Most African countries that have placed a form of restriction on cryptocurrency have cited risks to financial stability and the possibility of its usage for illegal finance, such as money laundering and terror financing.
Amidst these bans and uncertainties, the Central African Republic stands out with its reception of cryptocurrencies. In April, the country became the first African nation to adopt BTC as legal tender, and the second in the world, after El Salvador.
The Central African Republic remains the most crypto-friendly African country, as it introduces policies that regulate the industry and establish a crypto hub in Africa. In July, the country launched its “Sango Coin” in this regard.
Adopting BTC as a legal tender violates provisions of CEMAC, of which the nation is a member state. This has brought tension between CAR and the Bank of Central African States (BEAC), as the Central African Banking Commission has banned the usage of cryptocurrencies for transactions in Central Africa.
As these bans have done little to dampen investor interest, they have exposed cryptocurrency users to greater risks. In light of the FTX implosion and the sharp volatility that ensued, proper regulation has become a necessity now more than ever.