IMF warns rising stablecoin use could weaken Naira demands

The International Monetary Fund (IMF) has warned that the growing use of US dollar-denominated stablecoins in Nigeria could weaken demand for the naira, and undermine the effectiveness of the country’s monetary policy framework.

IMF observed in a report titled “Stablecoins in Nigeria: A Growing Cross-Border Channel” on Tuesday, noting that the widespread use of stablecoins poses risks to monetary sovereignty, particularly as more individuals and businesses turn to digital dollar-linked assets for savings and transactions.

The warning comes as Nigeria continues to rank among the world’s largest crypto markets.

The country received about $59 billion in crypto-asset inflows between July 2023 and June 2024, ranking second globally on Chainalysis’s 2024 Global Crypto Adoption Index and sixth in 2025.

Nigeria also accounts for about 60 per cent of stablecoin inflows into sub-Saharan Africa since 2019.

The IMF acknowledged the benefits of stablecoins, noting that they facilitate cheaper and faster cross-border payments.

Despite these benefits, the international organisation cautioned that the growing popularity of stablecoins could have broader macroeconomic implications for Nigeria’s monetary policy.

The IMF added that stablecoins also pose risks to the country’s financial integrity, flagging the speed and anonymity of some platforms as potential enablers of illicit finance, including money laundering.

“One is monetary sovereignty. As stablecoins are typically denominated in US dollars, widespread use can resemble a digital form of dollarization. By reducing demand for the local currency, it could weaken the transmission of domestic monetary policy.

“Another concern is financial integrity. Activity that once flowed through banks is moving increasingly to digital wallets and crypto exchanges.

“Monitoring systems designed for traditional intermediaries may not capture these transactions effectively. The speed and anonymity of some platforms can also increase risks of illicit finance, including money laundering,” the IMF said.

Despite the risks, the IMF recognised that stablecoins offer practical benefits, particularly for households and small businesses with limited access to formal banking services.

It said stablecoins enable users to receive remittances and make international payments more efficiently and quickly.

To address the risks associated with digital dollarization, the IMF urged policymakers to maintain macroeconomic stability and strengthen confidence in the domestic currency.

“First, safeguard monetary stability. The most effective defense against digital dollarization is a stable and credible domestic currency.

“Nigeria’s recent macroeconomic reforms and tighter monetary policy have helped restore confidence in the naira. Sustaining this progress will be critical.”

The IMF also called for stronger regulation of the digital asset ecosystem, urging Nigeria to adapt regulatory frameworks from the European Union, Singapore, Hong Kong SAR, Japan, and the United States to local conditions.

“Second, strengthen oversight. Nigeria has taken steps in this direction, including Nigeria’s Securities and Exchange Commission rules for virtual asset service providers and CBN guidance on their interaction with banks.

“The next step is to clarify the treatment of stablecoin issuers and align domestic rules with emerging international frameworks, such as those in the European Union, Singapore, Hong Kong SAR, Japan, and the United States, while adapting them to local conditions,” the Fund said.

Additionally, the IMF stressed the need for better data on stablecoin activity and further improvements in payment infrastructure to reduce reliance on unregulated channels and enhance regulatory visibility over digital asset transactions.

The IMF noted that while the challenges associated with stablecoins are global, Nigeria’s scale of adoption makes the risks more pronounced and warrants close policy attention.

Stablecoins are digital currencies pegged to the US dollar or other fiat currencies, serving as a critical financial bridge in Nigeria.

The Fund noted that several factors have contributed to the growing use of stablecoins in Nigeria.

According to the report, the sharp depreciation of the naira in 2023 and 2024, elevated inflation, and constrained access to foreign exchange increased demand for dollar-linked assets, with stablecoins serving both as a hedge against currency risk and a means of paying overseas suppliers.

The IMF also said that after the Central Bank of Nigeria (CBN) restricted banks from servicing crypto exchanges in February 2021, a substantial portion of crypto activity shifted to less regulated channels, particularly peer-to-peer platforms.

The report explained that stablecoins have become increasingly attractive globally because they are relatively stable in value, easy to transfer, and widely used as settlement assets within crypto markets. In Nigeria, however, economic pressures have amplified their appeal.