Cryptocurrency plan will radically transform Kenya’s monetary system: report


Cryptocurrency plan will radically transform Kenya's monetary system: report
A copy of bitcoin standing on PC motherboard is seen in this illustration picture, October 26, 2017. Picture taken October 26, 2017. REUTERS/Dado Ruvic

A ICT Ministry-backed team has retained its quest for the development of cryptocurrency assets in Kenya in spite of regulator unease.

The task-force reiterated its position on the bid for a sovereign digital currency maintaining that the proposal will have a positive impact on Kenya’s financial services.

“The case for a Central Bank Digital Currency (CBDC) is strong considering the fact that most of the money and corresponding transactions are already in electronic form.

“These currencies could transform all aspects of the monetary system and facilitate the systematic and transparent conduct of monetary policy, radically improve tax collection, including the transmission of government policies into the monetary posture of the economy,” reads the report in part.

“Central Banks must keep pace with changes and be vigilant of Fintech developments to capture their most valuable characteristics,” the team added in its revised report presented to ICT Cabinet Secretary Joe Mucheru.

The guidance by the new technologies sits with the rise of the development of crypto assets by Central Banks around the world in response to the shifting paradigm in global finance regimes.

The G20 international forum and the European Union (EU) have laid the building blocks for the adoption of sovereign digital currencies through collaborations with Banking for the International Settlement (BIS) and the Financial Sector Stability.

In Africa, Tunisia and Senegal have been the first countries on the continent to create a block-chain national currency which makes for legal tender.

The Kenya blockchain task-force has recommended the development of a state digital asset framework which would in the long-run enable citizens to raise funds through Initial Coin Offers (ICOs).

Regulator disquiet

The Central Bank of Kenya (CBK) whose mandate encompasses the scope of the national payments landscape has remained pragmatic on the back of hysteria surrounding the adoption of digital currencies, warning both citizens and financial institutions against dealing in the crypto assets.

The CBK had in April of 2018 blacklisted the virtual currencies while cautioning banks against dealing in the digital units, sighting downward risks including illicit financing and fraud.

Most recently, CBK Governor Patrick Njoroge has opposed Facebook’s plans for a digital currency- Libra, joining the growing a number of world regulators who have warned of risks to the disruption of the global financial system including the US Federal Reserve.

Njoroge has termed the move by the social media giant as ‘dangerous’, highlighting on the firm’s mishandling of key consumer data in the run up to the US general elections in 2016.

The Capital Markets Authority (CMA) whose scope entails the approval of capital markets issuance tools has in its part retained similar sentiments to the CBK having allowed for all fintech innovations but crypto-assets in its regulatory sandbox which was made operational earlier this year.

While the digression to cryptocurrency asset adoption has on one hand been viewed by critics as State resistance to changing times, a number of isolated incidences have aroused the regulators’ conventionality.

Kenyan Bitcoin investors lost millions in hard-earned monies at the start of 2019 having fallen prey to Brazilian pyramid scheme Velox which at the time falsely advertised its dealing in crypto as a fixed-income instrument.

Further afield, the crypto assets have been susceptible to hacks with the biggest heist so far in 2019 hitting the Japanese exchange Coincheck, in an attack that cost the trading platform an estimated 523 million crypto coins valued at Ksh.56 billion ($534 million).

In February, the sudden death of Quadriga cryptocurrency exchange founder Gerald Cotten left Ksh.15 billion ($145 million) in Bitcoin and other digital assets which were encrypted by his passwords irretrievable.

Rally

While the valuation of crypto assets hit rock-bottom in 2018, the asset class has been on the bounce so far this year buoyed by a deteriorating global investor environment under the cloud of slowing growth.

Bitcoin has been on a roll this year having recovered from the 2018 plummet to gain over 160 percent in value to breach the Ksh.1 million ($10,000) confidence ceiling once more in June.

After the depressive bear run last year, the crypto-asset has made for one of the best performing stocks so far in the year with the comeback being underpinned by the equities market haphazardness defined largely by restlessness in the global environment under escalating trade spates.

The rally has further been propped by the mainstreaming of crypto assets by huge firms including Facebook, Google and Goldman Sachs in a factor that has grown the demand for the portfolio by investors.

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Story By Kepha Muiruri
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