The International Monetary Fund (IMF) has highlighted the rapid growth of stablecoin usage in Nigeria as a new channel for cross-border payments.

The IMF said digital assets linked to the US dollar were easing payment challenges but creating fresh regulatory concerns.

This is contained in a report issued on Tuesday to the News Agency of Nigeria (NAN).

In its latest analysis, the IMF noted that Nigerian households and small businesses increasingly use smartphones and digital wallets.

It said stablecoins had developed from a niche technology into a significant cross-border transaction method.

The report, titled ‘Stablecoins in Nigeria: A Growing Cross-Border Channel’, was authored by Axel Schimmelpfennig and Bo Zhao.

The IMF said Nigeria received about $59 billion in crypto-asset inflows between July 2023 and June 2024.

It added that Nigeria ranked second globally in the 2024 Chainalysis Global Crypto Adoption Index.

The country also accounted for about 60 per cent of stablecoin inflows in sub-Saharan Africa since 2019.

According to the IMF, stablecoins now serve as a bridge between cryptocurrency markets and traditional financial systems.

The report explained that stablecoins gained popularity because they allow faster and cheaper international transfers.

Users can receive remittances or make overseas payments within minutes using only internet access.

The IMF said this was particularly useful for people with limited access to formal banking services.

It noted that stablecoins also support crypto trading by providing liquidity and settlement options.

The report stated that remittance costs remain high, especially in sub-Saharan Africa, where fees average about nine per cent.

The IMF said domestic economic pressures also increased demand for dollar-linked digital assets.

It identified naira depreciation, inflation and foreign exchange shortages as major factors behind adoption.

Stablecoins became attractive as users sought protection against currency risks and ways to pay foreign suppliers.

The IMF recalled that after the Central Bank of Nigeria restricted banks from servicing crypto exchanges in 2021, activities moved elsewhere.

The fund said many transactions shifted towards peer-to-peer platforms with weaker regulatory oversight.

The organisation acknowledged that stablecoins could improve trade, remittances and financial inclusion.

However, it warned that increased usage could create challenges for monetary policy and financial stability.

The IMF said widespread dollar-denominated stablecoin use could resemble digital dollarisation.

It explained that reduced demand for local currency might weaken monetary policy transmission.

The report also raised concerns about financial integrity and illegal financial activities.

It said some digital platforms may not provide the same monitoring standards as traditional banks.

The IMF warned that speed and anonymity could increase risks linked to money laundering.

The fund advised against attempts to completely suppress stablecoin activities.

Instead, it recommended policies that support innovation while addressing emerging risks.

The IMF outlined four priorities for Nigeria, including protecting monetary stability and strengthening regulation.

It said maintaining confidence in the naira remained essential to limiting digital dollarisation.

The organisation praised recent economic reforms and tighter monetary measures aimed at improving stability.

The IMF also urged clearer rules for stablecoin issuers and stronger oversight frameworks.

It said Nigeria should align its regulations with international standards while considering local conditions.

The report recommended improved data collection to help authorities monitor stablecoin activities.

It suggested combining blockchain analysis with information on naira-to-stablecoin conversions.

According to the IMF, better payment infrastructure could reduce reliance on informal channels.

The fund said Nigeria’s instant payment systems and regional initiatives had shown progress.

It encouraged further investment in faster, cheaper and more connected payment networks.

The IMF stressed that stablecoins were neither a temporary trend nor a full replacement for traditional finance.

It described them as a response to long-standing problems in cross-border payments.

The organisation said the challenge was balancing innovation with effective regulation.

It stressed that sound economic policies would remain vital as digital finance continues evolving.