IMF recommends Nigerian authorities regulate cryptocurrency exchanges and implement anti-money laundering measures, rather than imposing strict bans.

The International Monetary Fund (IMF) recently released a report pointing out risks in Nigeria's economic situation and suggesting the inclusion of cryptocurrencies in the regulatory framework. The report proposes that rather than strict regulatory environments, implementing anti-money laundering mechanisms and further opening up to innovation could help foster economic growth in the region.

Nigerian Authorities See Risks in Cryptocurrencies

Nigerian authorities generally agree on the need to control national economic risks and are particularly concerned about risks that could affect the macroeconomy, with a focus on the risks associated with illicit flows, including cryptocurrencies, which they are currently addressing.

Due to the inability to trace the identities and sources of funds of many traders, with the aim of preventing capital flight, Nigerian authorities closed Binance and other cryptocurrency exchanges at the end of February and revoked 4,173 Bureau De Change (BDC) licenses that did not comply with CBN accounting and reporting requirements.

Nigeria's Net Error and Omissions (NEO) in the 2023 national balance sheet amount to $7.5 billion, already accounting for 2% of the country's GDP, and the figure appears to be expanding. These errors are often due to unreported cross-border transactions, such as cryptocurrency transactions or overseas acquisitions and disposals of assets.

It is evident how significant the impact of cryptocurrencies is on Nigeria, making it understandable why authorities would want to strictly regulate or even suppress the cryptocurrency industry.

IMF Suggests Nigeria Embrace and Manage Cryptocurrency Industry

However, the IMF offers a different suggestion: to accept and effectively manage the development of the cryptocurrency industry, primarily for two reasons.

Implementing Anti-Money Laundering Benefits National Development

The IMF believes that incorporating cryptocurrencies into its financial system can ensure Nigeria's position in the African cryptocurrency market. It is suggested to allow global cryptocurrency trading platforms to register and obtain licenses in Nigeria.

The IMF suggests that Nigerian authorities should ensure effective AML/CFT (Anti-Money Laundering/Countering the Financing of Terrorism) regulation to enable traceability in cryptocurrency transactions, reducing the flow of illegal or untraceable funds, which is more efficient than prohibition.

On the other hand, effective implementation of AML/CFT regulations could also lead to Nigeria's removal from the FATF grey list, providing more international opportunities.

Complete Prohibition of Cryptocurrency Trading is Costly and Challenging

Although Nigerian authorities have recently attempted to suppress the cryptocurrency industry once again, a complete ban may not effectively deter illicit financial flows and could potentially encourage such activities.