Africa’s Pressured Crypto Sector Direly Needs Regulation
Regulating crypto is similar to taming a primal beast, but given unlikely industry events of late, the market desperately needs to be wrangled by law. Ever since the overnight collapse of Sam Bankman-Fried’s FTX, there has been agitation for cryptocurrency regulation to become something more than boardroom discussions.
Most governments find it challenging to regulate crypto assets due to their decentralization and volatility. As such, they have mostly adopted a “stay away” approach, leaving room for loopholes that keep consumers unprotected.
The way to strike a balance is by minimizing the associated risks while paving the way for the industry to innovate the financial system. In Africa, which is the world’s second-largest crypto market, governments can no longer afford to sit on the fence or play the waiting game.
Just one-quarter of the countries in Sub-Saharan Africa regulate digital assets formally.
Nevertheless, two-thirds have placed restrictions on crypto transactions, and about 6 countries, like Liberia and Zimbabwe, have implicitly banned the currency. Countries like Cameroon, Tanzania, Congo Republic, Ethiopia, Lesotho, and Sierra Leone have outright bans.
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Though Africa has one of the world’s fastest-growing crypto markets, it has the smallest in terms of transactions, which apexed at USD 20 B monthly back in 2021.
Being that many use these assets for commercial payments, policymakers are wary that they can be used for illegal transfer of funds. They fear that its use could prevent capital outflow and undermine the region’s monetary policies.
The Central African Republic became the first country in the continent to adopt Bitcoin as its legal tender.
But ever since the implementation, the CAR has gotten into the bad books of the Bank of Central African States (BEAC). The IMF also warned the country against the move, citing that it would present several macroeconomic challenges.
Thankfully, in recent months, legislators in Kenya, Nigeria, South Africa, and even Ghana are making moves to enact laws around cryptocurrency transactions and protect their capital markets as well as consumers. The highest number of cryptocurrency users in the region are from Kenya, Nigeria, and South Africa.
For some countries, regulating crypto starts with setting up a framework to mint central bank-backed digital currencies (CBDCs), as a way to control the crowd away from conventional digital assets and prevent [further] currency devaluation.
A handful of African nations, including Kenya, Uganda, Rwanda, Zambia, Botswana, Namibia, Mauritius, Morocco, and Sudan are exploring this option, though in the wake of reproach and consumers’ reluctance to fully adopt.
