Africa’s Growing Crypto Market Needs Better Regulations

IMF Blog, November 22, 2022

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The collapse of the world’s third largest crypto exchange FTX and subsequent plunge in the prices of Bitcoin, Ethereum, and other major crypto assets has prompted renewed calls for greater consumer protection and regulation of the crypto industry.
Regulating a highly volatile and decentralized system remains a challenge for most governments, requiring a balance between minimizing risk and maximizing innovation.
Only one-quarter of countries in sub-Saharan Africa formally regulate crypto.
Two-thirds of countries in sub-Saharan Africa have implemented some restrictions.
Six countries—Cameroon, Ethiopia, Lesotho, Sierra Leone, Tanzania, and the Republic of Congo—have banned crypto.
Zimbabwe has ordered all banks to stop processing transactions (implicit ban).
Liberia directed a local crypto startup to cease operations (implicit ban).

Africa is one of the fastest-growing crypto markets in the world, according to Chainalysis, but remains the smallest, with crypto transactions peaking at $20 billion per month in mid-2021.
Kenya, Nigeria, and South Africa have the highest number of users in the region.
Many people use crypto assets for commercial payments, but their volatility makes them unsuitable as a store of value.
Policymakers are concerned 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 undermine the effectiveness of monetary policy, creating risks for financial and macroeconomic stability.
The risks are greater if crypto is adopted as legal tender, which could put public finances at risk if crypto assets are held or accepted by the government.

The Central African Republic is the first country in Africa, and the second in the world after El Salvador to designate Bitcoin as a legal tender.
The Central African Republic’s measure has put the country at odds with the Bank of Central African States (BEAC), the regional central bank that serves the Economic and Monetary Community of Central Africa (CEMAC), and violates the CEMAC Treaty.
BEAC’s banking sector supervisory body—Central Africa's Banking Commission—has banned the use of crypto for financial transactions in the CEMAC region.

Need for strengthened consumer protection and regulatory frameworks to manage volatility and decentralization.
Balance regulatory measures to minimize risks (consumer protection, capital flow safeguards, monetary stability) while allowing space for fintech innovation.
Regional coordination is important to address cross-border risks and conflicts with regional monetary authorities.

—This blog is based on the October 2022 Regional Economic Outlook for sub-Saharan Africa