The International Monetary Fund warned that growing use of U.S. dollar-denominated stablecoins in Nigeria had the potential to weaken demand for the naira and reduce the effectiveness of the country’s monetary policy framework, according to a report cited by Nairametrics.
HOW STABLECOINS AFFECT MONEY DEMAND
The IMF said dollar-pegged stablecoins could represent a “digital form of dollarization”, weakening domestic monetary policy. For users, stablecoins offer near-instant cross-border payments and a way to store value outside the naira, and widespread use of dollar-linked tokens could weaken monetary policy by reducing demand for the naira, the IMF said.
The IMF said stablecoins have “become a meaningful cross-border payments channel” in Nigeria, which received about $59 billion in crypto-asset inflows between July 2023 and June 2024 and accounted for roughly 60% of stablecoin inflows in sub-Saharan Africa.
IMF RECOMMENDATIONS
The report said “attempts to suppress stablecoin use are likely to be only partly effective” and urged a “pragmatic” response that allows for innovation while “managing risks”.
Stablecoins can also undercut conventional remittance channels, the IMF said, citing World Bank data that sending $200 to sub-Saharan Africa costs about 9% of the transaction value on average, against a global average of 6%.
The IMF said the rise of stablecoins poses policy challenges, noting that transactions through digital wallets complicate oversight and raise the risk of illicit flows. Its recommendations included safeguarding monetary stability, strengthening oversight, improving data by “combining blockchain analytics with reporting on naira-stablecoin conversions”, and upgrading payment infrastructure to “reduce reliance on unregulated channels”.
Sources: Nairametrics Finance
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