Scale of Stablecoin Adoption in Nigeria Makes Risks ‘More Pronounced’, Says IMF

The pace of stablecoin adoption in Nigeria has highlighted the benefits of dollar-pegged crypto assets—and sharpened their risks, according to a new report by the International Monetary Fund.

IMF researchers noted that stablecoins have “become a meaningful cross-border payments channel,” with the country receiving some $59 billion in crypto-asset inflows between July 2023 and June 2024, and accounting for 60% of stablecoin inflows within sub-Saharan Africa since 2019.

While conceding that stablecoin adoption brings “clear benefits” including financial inclusion and cheaper cross-border payments, undercutting conventional remittance channels, the IMF flagged monetary sovereignty and financial integrity as concerns.

Dollar-pegged stablecoins could represent a “digital form of dollarization,” weakening domestic monetary policy, while traditional financial monitoring systems fail to “capture” stablecoin transactions effectively, with anonymity raising the risk of “illicit finance.”

“Attempts to suppress stablecoin use are likely to be only partly effective,” the report said, urging a “pragmatic” response that allows for innovation while “managing risks.”

The authors suggested safeguarding monetary stability to combat “digital dollarization,” lauding recent macroeconomic reforms and tighter monetary policy. Other risk management strategies include strengthening oversight, improving data through “combining blockchain analytics with reporting on naira-stablecoin conversions,” and upgrading existing payment infrastructure to “reduce reliance on unregulated channels” such as stablecoins.

The IMF has repeatedly criticized stablecoins over the past several years, warning that they could stifle central bank control and amplify financial crises. As recently as last week, the international financial institution urged “close monitoring” of crypto adoption in Nepal, highlighting the risks of “circumvention of capital controls or large-scale deposit outflows.”