Re­gional cen­tral banks say dig­i­tal cur­rency is risky and di∞cult to reg­u­late, and could lead to huge losses for in­vestors

The East African - - NEWS - The Eastafrican Re­ported by Vic­tor Kiprop, Vic­tor Karega and Ed­mund Ka­gire

Kenya, Tan­za­nia and Uganda said trad­ing in cryp­tocur­ren­cies is il­le­gal, for rea­sons rang­ing from whether they are com­modi­ties or money to be­ing pyra­mid schemes that could plunge in­vestors into losses.

EAC mem­bers have taken a com­mon stance against dig­i­tal cur­ren­cies even as their ap­peal grows across the world.

Kenya, Tan­za­nia and Uganda said trad­ing in cryp­tocur­ren­cies like Bit­coin is il­le­gal, for rea­sons rang­ing from whether they are com­modi­ties or money to be­ing pyra­mid schemes that could plunge in­vestors into losses.

“Trad­ing in cryp­tocur­ren­cies is il­le­gal in Uganda, and we have dis­cour­aged peo­ple from buy­ing them. It is not clear if these fi­nan­cial prod­ucts are cur­ren­cies or com­modi­ties. But we are work­ing on a pol­icy pa­per that will in­form our de­ci­sion-mak­ing on this sub­ject. This doc­u­ment will be fi­nalised be­fore the end of Jan­uary 2018,” said An­drew Wab­ulya, Bank of Uganda’s ex­ec­u­tive di­rec­tor for op­er­a­tions.

The Bank of Tan­za­nia said deal­ing in cryp­tocur­ren­cies is tricky be­cause they are not reg­u­lated and it was not clear who con­trols the mar­ket.

“A col­lapse of the cryp­tocur­rency mar­kets may lead to sub­stan­tial losses for in­vestors,” said BOT Gov­er­nor Florens Luoga, adding that their amor­phous na­ture could see them used to laun­der money or fund ter­ror­ism.

Prof Luoga how­ever said the BOT was work­ing to min­imise the risks by de­vel­op­ing a co­or­di­nated ap­proach to reg­u­la­tion of the cryp­tocur­ren­cies mar­ket and re­strict­ing the scope of in­vest­ments and trans­ac­tions.

Cen­tral Bank of Kenya Gov­er­nor Pa­trick Njoroge, said cryp­tocur­renc ies re­mained prone to theft, fraud, and other forms of crime that expose users to po­ten­tial losses due to lack of back­ing by cen­tral banks or any phys­i­cal as­sets.

“Our point is that there is risk, and it is im­por­tant that ev­ery­body knows that those risks can come back to haunt us and could have fi­nan­cial sta­bil­ity con­cerns,” Dr Njoroge said.

In De­cem­ber 2015, the CBK is­sued a no­tice link­ing the vir­tual cur­ren­cies to ter­ror­ism and money laun­der­ing due to the un­trace­able na­ture of their trans­ac­tions.

Mean­while, dig­i­tal cur­ren­cies con­tinue to gain more trac­tion in the re­gion. Cur­rently, it is es­ti­mated that more than 1,000 Kenyans are ac­tively trad­ing in dig­i­tal cur­ren­cies with some con­fess­ing to have quit their jobs to take up trad­ing in cryp­tocur­ren­cies as a full-time job.

An­nerose Muhindi, a cryp­tocur­rency trader, says she first heard of the dig­i­tal cur­ren­cies in late 2016 but started trad­ing in them in March this year when one bit­coin was worth $1,200.

“After three weeks of trad­ing in Lite­coin, the re­turns had tripled and that’s when I ven­tured into Bit­coin,” Ms Muhindi told The Eastafrican.

But it is not all smooth sail­ing. Tan­za­nian Bit­coin trader Ray­mond Mulegi said some Tan­za­ni­ans had stopped us­ing one of the plat­forms be­cause of fraud.

“I usu­ally wire money to Xapo, and I have a solid ex­pe­ri­ence with that plat­form. There are oth­ers who used Bit­pesa in the past, but they re­cently stopped trad­ing in Tan­za­nia be­cause many peo­ple were in­volved in scams,” said Mr Mulegi.

Rwanda is yet to take an of­fi­cial po­si­tion on cryp­tocur­rency as Gov­er­nor of the Na­tional Bank of Rwanda (BNR) John Rwan­gombwa de­clined to com­ment on the mat­ter. How­ever, an ar­ti­cle in Global In­sights, au­thored by Sa­muel Baker and Nyi­rakanani Regine, se­nior econ­o­mists at BNR, in­di­cates that Rwanda is well aware of the grow­ing in­ter­est in cryp­tocur­rency and is po­si­tion­ing it­self to em­brace the Bit­coin craze.

The two econ­o­mists ar­gue that as Rwanda’s tech sec­tor con­tin­ues to grow, the coun­try will likely see the evo­lu­tion of cryp­tocur­ren­cies.

“Cryp­tocur­ren­cies may come as an alien ter­mi­nol­ogy to most Rwan­dans, but we be­lieve that this wave is about to hit, not long from to­day. BNR should there­fore brace for when it hits,” the au­thors say.

BNR recog­nises that cryp­tocur­ren­cies have im­pli­ca­tions for the global econ­omy, al­though they are still traded on a rel­a­tively small-scale.

Rwanda re­mains cau­tious about the risks in­volved.

“De­spite the ben­e­fits, the risks posed by cryp­tocur­ren­cies seem to be greater. First, this area is less un­der­stood around the world and this makes it alien to reg­u­la­tors.

“Given that cryp­tocur­ren­cies are grow­ing in pop­u­lar­ity as the new tech­nolo­gies be­come widely used, the lack of reg­u­la­tory over­sight may ex­ac­er­bate the risks cryp­tocur­ren­cies pose to fi­nan­cial sta­bil­ity,” the econ­o­mists say.

The anonymity of cryp­tocur­ren­cies means they are not sub­ject to any govern­ment or Cen­tral Bank in­ter­fer­ence, which may make them safe havens for money laun­der­ing, ter­ror­ist fi­nanc­ing, tax eva­sion and fraud.

“Al­though cryp­tocur­ren­cies have mostly been a phe­nom­e­non of ad­vanced economies, they are spread­ing and evolv­ing in de­vel­op­ing coun­tries in­clud­ing in Africa. In East Africa, Bit­pesa, a Kenyan-based block­hain pay­ments plat­form, is op­er­at­ing across Uganda, Kenya and Tan­za­nia.

“The com­pany launched in Novem­ber 2013, and con­tin­ues to ex­pand across the re­gion. Cryp­tocur­ren­cies are also be­com­ing pop­u­lar in South Africa, Nige­ria and Zim­babwe. This trend is likely to con­tinue,” the econ­o­mists add.

Some reg­u­la­tors around the world are ex­per­i­ment­ing with their own cryp­tocur­ren­cies, with China already test­ing its new ver­sion.

“In Kenya, the Cen­tral Bank has been strug­gling with how to reg­u­late Bit­pesa given the com­plex­ity of the plat­form and its im­pli­ca­tions for pol­icy,” the econ­o­mists say.

The to­tal mar­ket value of cryp­tocur­ren­cies went past the $300 bil­lion mark in mar­ket cap­i­tal­i­sa­tion this week, ac­cor­dion to data by Coin Mar­ket Cap.

Bit­coin — the best-known cryp­tocur­rency — crossed the $10,000 mark in val­u­a­tion this past week, bring­ing its year-to-date per­for­mance to more than 900 per cent; Ethereum crossed the $500 mark.

Dr Njoroge ac­knowl­edged the po­ten­tial of block chain -- the tech­nol­ogy that en­ables dig­i­tal cur­ren­cies.

“There may be a fu­ture for block chain. We are work­ing with our peers around the world on things that could lead to us­ing this tech­nol­ogy in spe­cific ways,” he said.

Kenya Bankers As­so­ci­a­tion CEO Ha­bil Olaka said while block chain is a pow­er­ful tech­nol­ogy that can be used to fa­cil­i­tate many pro­cesses in dif­fer­ent sec­tors, in­vest­ing in cryp­tocur­ren­cies is just as risky as any other as­set.

“We need to sep­a­rate cryp­tocur­ren­cies from block chain, which is a very safe tech­nol­ogy. The fact that cryp­tocur­ren­cies are not backed by the Cen­tral Bank means its value could fall from $10,000 to­day to $2000 to­mor­row,” Mr Olaka said.

Source: Bloomberg/graphic News

Newspapers in English

Newspapers from Kenya

© PressReader. All rights reserved.