The IMF has put forth a suggestion for Nigeria to grant licenses to global cryptocurrency exchanges as part of its economic reform efforts. The purpose behind integrating cryptocurrencies into the financial system is to secure Nigeria’s position in the African cryptocurrency market. The IMF recommends that these platforms be registered or licensed in Nigeria and be subject to the same regulatory requirements as financial intermediaries.
The report emphasizes the need for effective anti-money laundering and countering the financing of terrorism controls by crypto trading platforms and other virtual asset service providers. It also highlights discrepancies in Nigeria’s balance of payments, particularly in net errors and omissions, which indicate unrecorded financial transactions. These discrepancies are attributed to factors such as the increasing use of crypto assets for cross-border transactions, which often go unrecorded in traditional banking records.
While the report shows that Nigeria had a largely positive financial account balance in 2020, preliminary data for 2023 suggests that net errors and omissions continue to be very large and negative, amounting to nearly $7.5 billion or 2% of Nigeria’s gross domestic product.
The IMF believes that by regulating and licensing cryptocurrency exchanges, Nigeria could attract international investment, stabilize the financial market, and potentially improve remittance mechanisms, which is important considering the Nigerian diaspora. This endorsement for cryptocurrency adoption comes at a crucial time when Nigeria is facing worsening macroeconomic challenges like currency instability and inflation. The IMF sees the licensing of cryptocurrency exchanges as a way to leverage cryptocurrencies for more stable and efficient transactions.
By doing so, Nigeria could enhance its governance over digital financial movements, reduce illegal financial flows, and mitigate the risks of fraud and money laundering associated with cryptocurrency transactions. Recent evidence of this regulatory shift can be seen in the regulations proposed by Nigeria’s Securities and Exchange Commission, which plans to ban peer-to-peer cryptocurrency exchanges using the national currency, the naira. The purpose of this ban is to protect the naira from manipulation and its perceived impact on the exchange rate.
However, industry advocates previously considered a ban on P2P cryptocurrency payments to be nearly impossible to implement.