Africa’s Growing Crypto Market Needs Better Regulations
Following the collapse of FTX, the third-largest cryptocurrency exchange, and the subsequent drop in the prices of major cryptocurrencies such as Bitcoin and Ethereum, there are renewed calls for greater consumer protection and regulation of the crypto industry. However, regulating a decentralized and highly volatile system poses a challenge for many governments, as they need to balance minimizing risks and maximizing innovation. While only 25% of countries in sub-Saharan Africa formally regulate cryptocurrencies, two-thirds have implemented some restrictions, and six countries – Cameroon, Ethiopia, Lesotho, Sierra Leone, Tanzania, and the Republic of Congo – have banned them. Additionally, Zimbabwe has ordered all banks to stop processing crypto transactions, and Liberia has directed a local crypto startup to cease operations, which amounts to implicit bans.
The African continent is experiencing rapid growth in its cryptocurrency market, although it remains the smallest globally, with a peak of $20 billion in monthly transactions recorded in mid-2021. Kenya, Nigeria, and South Africa have the highest number of users in the region, and many people use cryptocurrency for commercial payments despite its volatility, making it unsuitable as a store of value.
Policymakers are concerned that cryptocurrencies can be used for illegal fund transfers out of the region, as well as for circumventing local rules aimed at preventing capital outflows. Furthermore, widespread adoption of cryptocurrency could undermine the effectiveness of monetary policy and pose risks to financial and macroeconomic stability.
These risks are further exacerbated if cryptocurrency is adopted as legal tender, as seen in the recent case of the Central African Republic becoming the first African country to designate Bitcoin as legal tender. This move 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), of which the Central African Republic is a member. BEAC’s banking sector supervisory body, the Central Africa Banking Commission, has banned the use of crypto for financial transactions in the CEMAC region