The already weakened local currency is under stress.
Residents of Nigeria are increasingly using stablecoins – digital tokens pegged to the US dollar – for international transfers. Households and small businesses are choosing them as a cheaper and faster alternative to traditional payment channels. This is stated in a report by the International Monetary Fund (IMF).
Until recently, this method of using cryptocurrencies remained relatively rare and was common only among a limited circle of users. However, over time, it has turned into an important channel for international payments. According to the IMF, from July 2023 to June 2024, approximately $59 billion in cryptocurrency flowed into Nigeria. The country accounted for about 60% of all stablecoin inflows to countries in Sub-Saharan Africa.
Stablecoins are cryptocurrencies whose value is tied to specific assets and is intended to remain relatively stable. In recent years, they have gained widespread popularity worldwide. This has been facilitated, in particular, by support from former US President Donald Trump.
As noted by the IMF, the popularity of such tokens in Nigeria is rapidly growing due to a combination of two factors: exchange rate stability and the ability to transfer funds instantly via smartphones and digital wallets.
For users, stablecoins allow for nearly instantaneous money transfers abroad and the ability to store savings outside of the Nigerian currency – the naira, which remains unstable.
Moreover, the use of stablecoins helps reduce the costs of money transfers. According to the World Bank, sending $200 to countries in Sub-Saharan Africa costs about 9% of the transfer amount on average. In comparison, the global average is about 6%.
However, the spread of stablecoins also creates new challenges for the government. The IMF warns that the widespread use of dollar-pegged digital tokens could weaken the effectiveness of the country's monetary policy by reducing demand for the naira. Additionally, the shift of some financial operations to digital wallets complicates the monitoring of fund flows and increases the risks of illicit financial activities.
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