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Banks weary of cryptocurrencies due to non-regulation

Zachary Ochuodho @zachuodho

Commercial banks operating in Kenya are yet to fully embrace blockchain technology due to the volatility occasioned by the currency component given that it lacks control, Kenya Bankers Association (KBA) has revealed.

KBA said that commercial banks were not against the blockchain technology but were only raising concern over the use of currency.

KBA director of research and policy Jared Osoro (pictured, right with Institute of economic Affairs chief executive Kwame Owino) argues that currencies serve four basic functions – a unit of account, store of value, medium of exchange and a standard of deferred payment. Osoro explains that although cryptocurrency has three features, it lacks the fourth feature which is designated as the legal tender as per the mandate of the Central Bank of Kenya (CBK).

“Cryptocurrencies exhibits all the three elements of a currency except that they are not legal tender,” he said.

He said what this means is that they are not issued nor guaranteed by any jurisdiction and fulfil the currency functions only by agreement within the community of users of the virtual currency and that is why commercial banks regulator – CBK appears not keen on the technology.

Owino said although concerns were being raised about the technology as regards safety, volatility and as an ideal investment, there are other aspects such as storage and usage where the technology could be of use to the public and the economy at large. He suggested that since the Centralised Payment System is important in monitoring and adjusting the number of players who come on board, it would be difficult for anyone to misuse the technology without being noticed.

John Walubengo, a lecturer at the Multimedia University of Kenya, Faculty of Computing and IT, said although the blockchain technology does not have a regulator, it has a third option which is secure, quick and cheap.

Walubengo said the blockchain technology is in many ways similar to the traditional IPOs (initial public offerings) that are used at the Nairobi Securities Exchange when private companies decide to raise money from the public by selling a stake of their company through shares.

He said the private company can use the blockchain technology to raise cash for expansion while giving the public an opportunity to own a stake in the company.

“The regulator ensures that both the company and investors’ interests are safeguarded from common risks such as fraud by demanding stringent licensing requirements from the players in the market,” he said.

Walubengo said cryptocurrency can also be used to encourage ethical business practices – especially in instances where there is collusion for fraud.