The IMF has put forth a recommendation for Nigeria to grant licenses to global cryptocurrency exchanges as part of its economic reform efforts. According to a recent report by the IMF, the goal of integrating cryptocurrencies into the financial system is to secure Nigeria’s position in the African cryptocurrency market. The report suggests that these global crypto trading platforms should be registered or licensed in Nigeria and subjected to the same regulatory requirements as financial intermediaries.
The report emphasizes the need for authorities to ensure that crypto trading platforms and other virtual asset service providers adhere to Anti-Money Laundering and Countering the Financing of Terrorism (AML/CFT) controls through effective risk-based supervision.
The report also highlights the discrepancies in Nigeria’s balance of payments, particularly in net errors and omissions, which indicate unrecorded financial transactions. These discrepancies are attributed to various factors, including the increasing use of crypto assets for cross-border transactions, which often go unrecorded in traditional banking records.
While the report previously reflected positive trends in 2020, the preliminary data for 2023 shows that the discrepancies continue to be significantly negative, amounting to nearly $7.5 billion, which is equivalent to 2% of Nigeria’s gross domestic product.
The IMF believes that by regulating and licensing cryptocurrency exchanges, Nigeria can attract international investment, stabilize its financial markets, and potentially improve its remittance mechanisms, which is particularly important considering the Nigerian diaspora.
The IMF’s endorsement of cryptocurrency adoption comes at a time when Nigeria is facing worsening macroeconomic challenges, including currency instability and inflation. By licensing cryptocurrency exchanges, the IMF aims to utilize cryptocurrencies as a tool for more stable and efficient transactions, thereby enhancing Nigeria’s control over digital financial movements, reducing illegal financial flows, and mitigating the risks of fraud and money laundering associated with cryptocurrency transactions.
There is already evidence of this regulatory shift in Nigeria, as the country’s Securities and Exchange Commission has introduced regulations that will ban peer-to-peer (P2P) cryptocurrency exchanges involving the national currency, the naira. The ban aims to protect the naira from manipulation and its perceived impact on the exchange rate.
However, industry advocates consider a ban on P2P cryptocurrency payments to be a challenging task that was previously thought to be nearly impossible.