The collapse of the FTX cryptocurrency exchange has attracted the attention of global regulators, including the International Monetary Fund (IMF). Before its demise, FTX was the third-largest cryptocurrency exchange by trading volumes, and it had a significant presence in developing countries.
In a recent statement, the IMF said that the demise of FTX and the dropping prices of Bitcoin, Ethereum, and other cryptocurrencies, have necessitated better regulations in the industry and consumer protection measures.
The global financial institution noted that crypto assets were highly volatile, and their decentralized nature made it challenging for most governments to regulate the industry. Therefore, there was a need to balance lowering the risk posed by the industry and supporting innovation.
It further noted that only a quarter of the countries in sub-Saharan Africa regulated cryptocurrencies. Moreover, two-thirds of these countries had implemented some restrictions. In contrast, another six, including Cameroon, Ethiopia, Tanzania, Lesotho, Sierra Leone, and the Republic of Congo, had imposed a total ban on cryptocurrencies.
On the other hand, Zimbabwe has mandated all the banks licensed to operate in the country to halt processing cryptocurrency transactions. Additionally, Liberia instructed a crypto startup that had started offering services in the country to halt operations.
Africa has become a main hub for cryptocurrency activities. Data from Chainalysis shows that the number of crypto transactions in the country has increased over the years. However, the size of crypto transactions in the continent is smaller than in other regions, with the monthly transactions peaking at $20 billion in mid-2021.
The highest number of crypto users in the region are in Kenya, Nigeria and South Africa. The majority of people in the region use cryptocurrencies to make commercial payments. However, the volatility of these assets makes them unsuitable for use as a store of value.
Policymakers have raised concerns over whether crypto assets can be used to make illegal transactions outside the region and to avoid the rules put in place to avoid capital outflows. The high use of cryptocurrencies in the region could reduce the effectiveness of the monetary policy, which poses a danger to financial and macroeconomic stability.
The IMF has also said that the cryptocurrency sector’s risks were higher if these assets were adopted as legal tender, citing an example of the Central African Republic. The country became the second globally to adopt Bitcoin as a legal tender. According to the IMF, holding crypto assets as a means of payment puts public finances at risk.
The IMF has also added that adopting BTC as a legal tender in the Central African Republic has caused conflict between the country and the Bank of Central Africa States (BEAC), as it violates the institution’s treaty. Central Africa’s Banking Commission, which supervises the BEAC banking sector, has banned using cryptocurrencies for financial transactions.
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This article was written for Business 2 Community by Ali Raza.
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Ali is a professional journalist with experience in Web3 journalism and marketing. Ali holds a Master’s degree in Finance and enjoys writing about cryptocurrencies and fintech. Ali’s work has been published on a number of leading cryptocurrency publications including Capital.com, CryptoSlate, Securities.io, Invezz.com, InsideBitcoins, BeinCrypto, and more. …
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