The International Monetary Fund (IMF) has recommended that Nigeria license global cryptocurrency exchanges as part of its economic reformation measures.
According to a recent IMF report, the bid to integrate cryptocurrencies into its financial system aims to secure Nigeria’s position in the African cryptocurrency market. The report recommends that “global crypto trading platforms be registered or licensed in Nigeria and subject to the same regulatory requirements applicable to financial intermediaries.”
The report emphasizes the need for authorities to ensure the application of Anti-Money Laundering and Countering the Financing of Terrorism (AML/CFT) controls by crypto trading platforms and other virtual asset service providers through effective AML/CFT risk-based supervision.
The report points out discrepancies in Nigeria’s balance of payments, particularly in net errors and omissions, which reflect unrecorded financial transactions. These discrepancies are attributed to several factors, including the “shift to using crypto assets for cross-border transactions,” often not recorded through traditional banking records.
The preliminary 2023 data suggests that these Net Errors and Omissions (NEOs) continue to be very large negative, at close to $7.5 billion, which is approximately 2% of Nigeria’s gross domestic product.
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, which is 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. By licensing cryptocurrency exchanges, the IMF aims to utilize cryptocurrencies as a tool for more stable and efficient transactional processes.
This regulatory shift can be seen in the regulations posed by Nigeria’s Securities and Exchange Commission, which is set to ban peer-to-peer (P2P) cryptocurrency exchanges using Nigeria’s national currency, the naira. The ban aims to protect the naira from manipulation after “perceived 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.