A well-regulated African cryptocurrency market is needed in order to protect users as well as help countries stop bad actors from using digital assets to circumvent capital controls, the latest post on the IMF blog has said. The blog post reiterated the IMF’s belief that risks to a country are “much greater if crypto is adopted as legal tender.”
Crypto’s Volatility Said to Render It an Unsuitable Store of Value
The collapse of the cryptocurrency exchange FTX and subsequent crypto market downturn once again highlights the need for better regulation of the industry, the International Monetary Fund (IMF) has said in its latest blog post. According to the blog, in Africa, where the crypto market is rapidly growing, urgent action is also needed in order to block or stop bad actors from using crypto assets to facilitate illegal activities.
As per the global lender’s latest blog post, only a quarter of countries in Africa’s sub-Saharan region formally regulate cryptocurrencies. However, in the Bretton Woods Institution’s latest post known as the “Chart of the Week,” it is stated that over two-thirds of countries from the region have implemented some restrictions.
Only six countries, namely Cameroon, Ethiopia, Lesotho, Sierra Leone, Tanzania, and the Republic of Congo have effectively banned crypto, the blog revealed. Zimbabwe, on the other hand, directed banks to stop processing crypto-related transactions.
While the authors of the Nov. 22 blog post did concede that “many people use crypto assets for commercial payments,” they insisted that crypto assets’ volatile nature makes them unsuitable alternative stores of value.
Wider Use of Cryptocurrencies Potentially Undermines the ‘Effectiveness of Monetary Policy’
Besides the volatility, the authors also claimed that African policymakers are concerned that crypto assets are being used to bypass countries’ respective exchange and capital controls, noting:
Policymakers are also worried that cryptocurrencies can be used to transfer funds illegally out of the region and to circumvent local rules to prevent capital outflows. Widespread use of crypto could also undermine the effectiveness of monetary policy, creating risks for financial and macroeconomic stability.
Concerning the Central African Republic (CAR), which has already made bitcoin legal tender, the authors reiterated the IMF’s belief that such a decision places “public finances at risk.” The move by the CAR also contravenes the Economic and Monetary Community of Central Africa (CEMAC)’s treaty on cryptocurrencies.