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