The Collapse of the World’s Third Largest Crypto Exchange
FTXand the subsequent fall in the prices of Bitcoin, Ethereum and other major crypto assets, are 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 a quarter of countries inot Sub-Saharan Africa formally regulate crypto. However, like our Chart of the week shows, two-thirds have restrictions in place and six countries – Cameroon, Ethiopia, Lesotho, Sierra Leone, Tanzania and the Republic of Congo – have banned crypto. Zimbabwe ordered all banks to stop processing transactions and Liberia ordered a local crypto startup to cease operations (implied 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 trade payments, but their volatility makes them unsuitable as a store of value.
Policymakers are also concerned that cryptocurrencies could be used to illegally transfer funds out of the region and circumvent local rules to prevent capital outflows. The widespread use of crypto could also undermine the effectiveness of monetary policy, creating risks to financial and macroeconomic stability.
The risks are all the 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 a means of payment, it could jeopardize public finances.
The Central African Republic is the first country in Africa, and the second in the world after
El Salvador to designate Bitcoin as legal tender. The measure 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 – and violates the CEMAC Treaty. BEAC’s banking sector watchdog, the Central African Banking Commission, has banned the use of cryptography for financial transactions in the CEMAC region.
—This blog is based on the month of October 2022
Regional Economic Outlook
for sub-Saharan Africa