IMF backs crypto to solve Nigeria’s forex issues despite local crackdown

The International Monetary Fund (IMF) has recommended that Nigeria embrace the regulated use of digital assets by licensing international crypto exchanges.

The watchdog made the proposal in its latest consultation report for Nigeria. The move aims to bolster the country’s economic stability while enhancing its status within the African crypto sector.

The recommendation comes amid a recent regulatory crackdown on crypto in Nigeria that has resulted in a legal tussle with Binance and a planned ban on peer-to-peer (P2P) trading.

Licensing crypto exchanges

The recent report by the IMF suggests that licensing these platforms would help attract foreign investment and improve remittance processes, which is crucial for Nigeria due to its significant expatriate population.

The IMF urges adherence to strict regulatory standards, including robust Anti-Money Laundering and Countering the Financing of Terrorism (AML/CFT) protocols.

The advisory also identified substantial gaps in Nigeria’s balance of payments, with discrepancies approaching $7.5 billion, or about 2% of the country’s GDP. These gaps primarily result from undeclared financial activities, often facilitated by cryptocurrencies in cross-border transactions.

The IMF contends that through proper regulation and licensing, cryptocurrencies can provide Nigeria with tools for more secure and efficient transaction processes. This would enhance control over digital financial transactions, curb illegal financial activities, and decrease the risks of fraud and money laundering associated with digital currencies.

The report also said that digital currencies could help foster financial inclusion. It highlighted the potential of digital finance to support economic growth and improve access to financial services for the unbanked population of Africa.

Crackdown

Recent weeks have seen a significant regulatory crackdown on crypto and P2P trading in Nigeria. The stringent stance is largely driven by the Nigerian government’s concerns over the volatility in the foreign exchange market, which they attribute to speculative activities in crypto trading.

Notably, the Central Bank of Nigeria has pointed out activities such as “pump-and-dump” schemes in the P2P trading sector as problematic, accusing traders of manipulating the naira through these speculative strategies.

A major development in the crackdown involved actions against Binance. Nigerian regulators have accused the exchange of facilitating $26 billion in untraceable transactions, which led to the arrest of two of its executives and the freezing of over 1,000 bank accounts linked to P2P crypto transactions.

According to local reports, Nigeria’s crypto traders have increasingly moved their operations underground in response to these crackdowns. Traders are now using informal channels such as WhatsApp and Telegram for P2P trading, utilizing non-custodial or self-custody crypto wallets to continue their activities outside the scope of regulated exchanges.

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