The international monetary fund (IMF) on Tuesday, 22nd November 2022, called for crypto regulation within Africa. After the ripple effects of the FTX fallout, writers of the IMF report urge that the risks emanating from crypto assets are evidence enough that it is time to implement regulations.
The IMF report reads that the price plunges of the giant crypto assets such as Bitcoin and Ethereum, among other ripple effects, call for extensive consumer protection and regulation within the space.
Why now IMF?
Africa is well known for its largest crypto market but still the smallest. In mid-2021, crypto transactions in Africa peaked at $20 billion per month. In this crypto market, digital assets trade at a very extensive margin that can go up to 100%. Difficulty in mining Bitcoin due to a lack of the required infrastructure and an unfavourable climate, a very high demand resulting from hyperinflation of the volatile fiat currencies are some factors contributing to this large trade margin.
Other factors include minimal virtual currency retailers who take advantage of this fact and set very high prices and the relative financial stability of digital money.
The IMF report explains that the volatile and decentralized nature of cryptocurrencies poses some of the challenges the space encounters regarding regulation. However, laws have advantages, such as finding in-between risk mitigation and leveraging disruptive innovation.
Crypto bans in Africa
The IMF report shows that ¼ of Sub-Saharan African countries formally regulate crypto. ⅔ of the countries introduced restrictions. Six countries, representing 20%, have already banned using of digital currencies. These countries include Cameroon, Ethiopia, Lesotho, Sierra Leonne, Tanzania and the Republic of Congo.
Zimbabwe is one of the countries that banned cryptocurrencies in 2018, as authorities ordered all banks to stop processing crypto transactions. The leaders are skeptical about crypto and may alter its legal framework. However, the political and economic unrest keeps Zimbabwe’s government concentrated on other problems.
Liberia’s policy stance, on the other hand, is an implicit ban. The authorities earlier directed a local crypto start-up to cease operations. In mid-August 2022, the Central Bank of Liberia Executive Governor, J. Aloysius Tarlue, urged central banks in Africa to have the interest of the public at heart and not any potential disruptions in the financial sector and the larger economy. He advised that such disturbances may erupt from the increasing trend of unregulated cryptocurrencies.
But crypto continues to grow regardless
Records show that Nigeria, Kenya and South Africa have the highest number of crypto users within the continent. Due to their volatile nature, many users use crypto for commercial payments and not as a store of value.
On October 19, 2022, South African regulators authorized crypto platforms to acquire licenses to operate, as of July 2023. Nigeria is yet to ban crypto outrightly. In May, Africa’s top crypto market’s SEC authorized exchanges operating within the country to register in order to obtain a pass to operate.
In Kenya, recently, an MP introduced a bill in Parliament to tax crypto assets. Should the Capital Markets (Amendment) Bill 2022 go through, taxes on digital currencies will align with the current excise duty for bank transactions. At the moment it stands at 20% on all transaction fees and commissions. Such a regulation would call for mass adoption.
A country like the Central African Republic accepted Bitcoin as a legal tender. The second country to do so after El Salvador from Central America. The legalization of Bitcoin in CAR jeopardizes the state since BEAC, the Central Bank that serves The Economic and Monetary Community of Central Africa (CEMAC), banned crypto transactions within the region. The IMF initially stated that CAR’s move would raise legal and economic concerns. Could the lending body have changed its stand on crypto?
Central Banks seek another alternative
Many Central Banks in Africa are working on rolling out CBDCs. Nigeria and Ghana are leading the pack. The Central Banks believe the CBDCs could help serve the unbanked and help grant them financial services. In remote areas that lack access to the internet, digital transactions could be made cheap or at no cost using simple feature phones. Affordable transactions have the prospect of facilitating cross-border transfers and payments.
Nigeria rolled out the e-Naira CBDC. The second country to launch a CBDC after the Bahamas. South Africa is working to roll out its wholesale CBDC, Project Khokha. Ghana is also in the pilot phase of the e-cedi CBDC. Other countries are in the research phase.
We are yet to see if the regulators will abide by the call for crypto regulation not only in Africa but the world at large. What we are sure of is that regulation will play a key role in the crypto ecosystem.
