The Central Bank of Kenya (CBK) governor, Dr Patrick Njoroge, told the National Assembly Committee on Finance that he has issued a circular to Kenyan banks warning them against dealing with cryptocurrencies or transacting with firms dealing with cryptocurrencies.
The new warning comes as the cryptocurrency excitement continues to grow in Kenya where calls for increased awareness in the space were given during the World Blockchain Summit held in Nairobi last month. What’s more, this news comes weeks after the blockchain and AI taskforce was unveiled, indicating a step back in an environment that was beginning to seem technology-oriented.
The blockchain is bitcoin’s underpinning technology while a cryptocurrency is an encrypted and decentralised digital asset that is transferred between peers on the blockchain network. In most use cases, blockchain projects are associated with crypto-tokens, suggesting the strong relationship between the two technologies and thereby the irony of embracing one and rejecting the other.
“There are risks associated with cryptocurrency particularly on consumer protection, fraud, hacking and loss of data and they are prone to be used as pyramid schemes,” Dr Njoroge, the CBK governor added, forgetting to mention that fraud and pyramid schemes are also carried out with fiat currencies such as the Kenyan shilling.
He also said cryptocurrencies are anonymous and unregulated hence attracting terrorists and money laundering activities. Interestingly, a recent report shows that mobile money is high-risk as a far as terrorism financing is concerned. Still, mobile money services remain unregulated.
Furthermore, the World Bank Group Senior Vice President Mahmoud Mohieldin termed crypto investing as a gamble during the Euromoney East Africa Conference held this week.
The Regulation Conundrum
Globally, regulators are dealing with cryptocurrencies in different ways suggesting that it all boils down to two things: threat versus opportunity.
“The bottom line is that, although governments need to put in place efficient regulations that prevent investors getting into difficult situations, the way such regulations are drafted will largely depend on their view of crypto as a useful financial innovation rather than a threat,” Daniele Bianchi, an assistant professor of finance, Warwick Business School says.
At the moment, the Central Bank of Kenya has chosen to see cryptocurrencies as a threat, a decision that could potentially hurt the economy. Additionally, the regulator fails to see the opportunity to eliminate financial inclusion barriers through digital currencies not to mention the job opportunities that the sector has to offer.
So while the CBK continues to grapple with the questions of how and when to regulate the space and what they can and cannot do while administering yearly cautions, the cryptocurrency community in Kenya will continue to grow and thrive. Why? Because in the words of Jeff Berwick, Chief Editor Dollar Vigilante, the power lies with the consumer.