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. This move aims to strengthen the country’s economic stability while improving its status within the African crypto sector.

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

Crypto exchange license

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

The IMF insists on compliance with strict regulatory standards, including robust anti-money laundering and countering the financing of terrorism (AML/CFT) protocols.

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

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

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

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To manhandle

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

Notably, the Central Bank of Nigeria has identified 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, leading to the arrest of two of its executives and the freezing of more than 1,000 bank accounts linked to P2P crypto transactions.

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

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