IMF Says Africa's Burgeoning Crypto Market Poses Risks and Needs Regulation

IMF Says Africa’s Burgeoning Crypto Market Poses Risks and Needs Regulation

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(Kitco News) –
The IMF believes the collapse of Sam Bankman-Fried’s FTX exchange should serve as a warning to African nations about the risks crypto poses to their economies, according to a blog post published this week.

“Regulating a highly volatile and decentralized system remains a challenge for most governments, requiring a balance between minimizing risk and maximizing innovation,” they wrote, noting that only 25% of countries in sub-Saharan Africa regulate cryptography, although two-thirds have some in place. restrictions and six countries have completely banned crypto.

“Africa is one of the fastest growing crypto markets in the world,” the authors wrote, citing data from Chainalysis, “but remains the smallest, with crypto transactions peaking at $20 billion. dollars per month in mid-2021″. Kenya, Nigeria and South Africa lead the way with the highest number of crypto users in the region, with many people using crypto to make payments.

The authors note that policymakers are concerned that cryptocurrencies “could be used to illegally transfer funds out of the region” and could also be used to circumvent rules designed to prevent capital outflows.

“The widespread use of crypto could also undermine the effectiveness of monetary policy, creating risks to financial and macroeconomic stability,” they write. “The risks are all the greater if crypto is adopted as legal tender, as the Central African Republic recently did.” They write that if governments start holding cryptocurrencies in public coffers or accepting crypto assets as payment “it could put public finances at risk.”

The Central African Republic was the first African country to recognize bitcoin as legal tender, and the second in the world after El Salvador in 2021. Bitcoin became legal tender after lawmakers voted unanimously to pass the bill legalizing the world’s largest cryptocurrency and other cryptos in April. Since then, Bitcoin could be used as legal tender alongside the Central African regional franc – a currency governed by the Bank of Central African States (BEAC) and used by five other nations.

The IMF authors write that CAR’s move put the country at odds with BEAC and violates the Central African Economic and Monetary Community (CEMAC) treaty to which they are signatories. “The banking sector watchdog BEAC – the Central African Banking Commission – has banned the use of cryptography for financial transactions in the CEMAC region.”

The IMF also issued a criticism of the Central African Republic’s decision in early May. “The adoption of bitcoin as legal tender in [Central African Republic] raises major legal, transparency and economic policy challenges,” the IMF said at the time. “IMF staff is helping regional and Central African authorities address concerns raised by the new law.

The information in the IMF’s message was based on the organization’s October 2022 Regional Economic Outlook for Sub-Saharan Africa.

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