According to a blog post posted this week, the IMF thinks that the failure of Sam Bankman-FTX Fried’s exchange should serve as a signal to African countries about the dangers that cryptocurrencies bring to their economy.
According to the writers, who cited Chainalysis statistics, “Africa is one of the fastest-growing crypto marketplaces in the world, but it remains the smallest, with crypto transactions topping at $20 billion per month in mid-2021.” The majority of cryptocurrency users in the region are found in Kenya, Nigeria, and South Africa, and many of them use it to make payments.
They wrote that only 25% of sub-Saharan African countries regulate cryptocurrency, though two-thirds have implemented some restrictions and six countries have outright banned it. “Regulating a highly volatile and decentralised system remains a challenge for most governments, requiring a balance between minimising risk and maximising innovation,” they wrote.
According to the authors, officials are concerned that cryptocurrencies “may be utilised to transport funds unlawfully out of the region” and that they may also be used to circumvent regulations enacted to stop capital outflows.
After El Salvador in 2021, the Central African Republic became the second nation in the world to accept bitcoin as legal cash. Following a unanimous vote by MPs to enact a bill legalising Bitcoin and other cryptocurrencies in April, the cryptocurrency was made legal cash. Since that time, the regional Central African franc, which is controlled by the Bank of Central African States (BEAC) and is used by five other countries, has been able to coexist with Bitcoin as legal money.
They warn that the widespread usage of cryptocurrencies “may also impair the efficacy of monetary policy, raising dangers for financial and macroeconomic stability.” If cryptocurrency is accepted as legal tender, as the Central African Republic just did, “the risks are that much larger.” They claim that accepting cryptocurrency as payment or keeping cryptocurrencies in public funds by governments “may put public finances at risk.”
The writers of the IMF report claim that the C.A.R.’s action has caused the nation to fall out with BEAC and violates the CEMAC convention, which they are a signatory to. The Central African Banking Commission, BEAC’s regulatory agency for the banking sector, has outlawed the usage of cryptocurrencies throughout the CEMAC region for financial transactions.
Early in May, the Central African Republic’s decision was criticised by the IMF as well. The IMF stated at the time that “the adoption of Bitcoin as legal tender in [Central African Republic] raises significant legal, transparency, and economic policy challenges.” The Central African Republic’s government and regional authorities are receiving help from IMF staff in addressing the issues raised by the new law.
News Summary:
- According to IMF, Africa’s expanding crypto economy needs regulation, poses hazards
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