The International Monetary Fund (IMF) has recommended that Nigeria license global cryptocurrency exchanges as a part of its economic reformation measures.
According to a recent IMF report, the bid to integrate cryptocurrencies into its financial system aims to secure Nigeriaâs position in the African cryptocurrency market. It recommends that âglobal crypto trading platforms be registered or licensed in Nigeria and subject to the same regulatory requirements applicable to financial intermediaries.â
âAuthorities should ensure the application of AML/CFT preventive controls by crypto trading platforms and other virtual asset service providers through effective AML/CFT risk-based supervision.â
The report points out discrepancies in Nigeriaâs balance of payments (BOP), particularly in Net Error and Omissions (NEO), which reflect unrecorded financial transactions. These discrepancies are attributed to several factors, including the âshift to using crypto assets for cross-border transactions,â often not recorded through traditional banking records.
Previously largely positive in 2020, the report portrays preliminary 2023 data that suggests âNEOs continue to be very large negative,â at close to $7.5 billion â 2% of Nigeriaâs GDP.
Source: Central Bank of Nigeria, Haver, and IMF
The IMF suggests that, through regulation and licensing of cryptocurrency exchanges, Nigeria could attract international investment, support financial market stabilization, and potentially improve remittance mechanisms â significant due to the Nigerian diaspora.
The IMF endorsement for cryptocurrency adoption comes at a time when Nigeria faces worsening macroeconomic challenges, such as currency instability and inflation. Through the licensing of cryptocurrency exchanges, the IMF aims to utilize cryptocurrencies as a tool for more stable and efficient transactional processes.
This would potentially improve Nigeriaâs governance over digital financial movement, decrease illegal financial flows, and mitigate fraud and money laundering risks associated with cryptocurrency transactions.
Recent evidence of this regulatory shift can be seen in the regulations posed by Nigeriaâs SEC â set to ban peer-to-peer (P2P) cryptocurrency exchanges using Nigeriaâs national currency, naira.
The Nigeria SEC Director General Emomotimi Agama indicated that the ban would aim to protect the naira from manipulation after âperceived impact on the exchange rate of the naira."
However, a ban on P2P cryptocurrency payments is a task previously considered close to impossible by industry advocates.