Africas Growing Crypto Market Needs Better Regulations

The collapse of the world’s third largest crypto exchange

FTX, and subsequent plunge in the prices of Bitcoin, Ethereum, and other major
crypto assets, is prompting renewed calls for greater consumer protection
and

regulation of the crypto industry.

Regulating a highly volatile and decentralized system remains a challenge for most governments, requiring a balance between minimizing risk and maximizing innovation. Only one-quarter of countries in sub-Saharan Africa formally
regulate crypto. However, as our Chart of the Week shows, two-thirds have implemented some restrictions and six
countries—Cameroon, Ethiopia, Lesotho, Sierra Leone, Tanzania, and the
Republic of Congo—have banned crypto. Zimbabwe has ordered all banks to
stop processing transactions and Liberia directed a local crypto startup to
cease operations (implicit bans).

Africa is one of the fastest-growing crypto markets in the world, according
to Chainalysis, but remains the smallest, with crypto transactions peaking
at $20 billion per month in mid-2021. Kenya, Nigeria, and South Africa have
the highest number of users in the region. Many people use crypto assets
for commercial payments, but their volatility makes them unsuitable as a
store of value.

Policymakers are also worried that cryptocurrencies can be used to transfer
funds illegally out of the region and to circumvent local rules to prevent
capital outflows. Widespread use of crypto could also undermine the
effectiveness of monetary policy, creating risks for financial and
macroeconomic stability.

The risks are that much greater if crypto is adopted as legal tender—as the
Central African Republic recently did. If crypto assets are held or
accepted by the government as means of payment, it could put public
finances at risk.

The Central African Republic is the first country in Africa, and the second
in the world after

El Salvador to designate Bitcoin as a legal tender. The measure 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), which the Central African Republic is a member of—and violates the
CEMAC Treaty. BEAC’s banking sector supervisory body—Central Africa’s
Banking Commission—has banned the use of crypto for financial transactions
in the CEMAC region.

—This blog is based on the October 2022

Regional Economic Outlook

for sub-Saharan Africa