Despite the Central Bank of Kenya (CBK) issuing a notice warning Kenyans against trading in virtual currencies, the increasing popularity, acceptance and user base of digital currencies is not something the banking regulator can easily wish away.
The Bitcoins can be traded for goods or services with vendors who accept them as payment. In Kenya users can convert them to shillings and use them to buy goods or remit via M-Pesa.
Unlike traditional money transfer services, where sending money to Kenya costs around 12 per cent, virtual money transfer operators that use bitcoins charge a three per cent flat fee.
In a statement mid last month, the CBK warned that digital currencies such as bitcoin are not legal tender in Kenya because they are not issued or guaranteed by any government.
“No protection exists in the event that the platform that exchanges or holds the virtual currency fails or goes out of business,” said CBK.
But this explanation may not hold for too long, as more countries change tack from issuing bans on the currencies and instead endeavour to find a solution on how to react to the rising demand for virtual currencies, or cryptocurrency, especially among those sending money from abroad because of the low fee.
Trading superpowers such as the United States and United Kingdom have shown a positive attitude towards the new technology of trading and payment of goods and services while Canada and Australia are still deliberating on what to do about bitcoin.
Some other countries have already made their decision against digital currency as a whole, for reasons that range from fear and ignorance and protection of their national currency, to building a new currency in bitcoin’s image. These include China, Vietnam, Russia and Sweden.
But others including Japan and India have started developing a framework that could pave the way for the regulation of virtual currency. Kenya may not be too far from also developing such a framework.
Last month after CBK issued the cautionary notice, CBK governor Dr Patrick Njoroge told People Daily they are ready to look into the issue but the players in the sector must be ready to follow the laid down procedures.
“CBK has a mandate to protect consumers and the population at large against possible dangers to their investments. For us to be seen to be doing our mandate, we had to be on record to protect the consumers. We would remiss on our mandate if we didn’t put on record all the dangers associated with the innovation,” said Njoroge when asked what prompted CBK to issue the warning.
“But there has to be a process where the operators work with CBK until all the dangers are dealt with, otherwise there will be a problem,” he said. He said CBK is not opposed to any innovation that will be useful to the people so long as the service providers operate within a regulatory framework.
“CBK is not anti-technology or anti-innovation. To the contrary, we appreciate innovations that improve on the lives of people, such as M-Pesa,” said the governor, adding that it is wrong for people to look at the technology side only without considering the dangers posed to society by such innovations.
He said before CBK embraced the Safaricom mobile money transfer system, they worked with the telecom company to improve the system until all the many concerns raised were addressed. The same procedure should be followed by those intending to provide a platform for the virtual currencies.
According to information published last month by Japan Times, the country has already proposed a regulation framework that will include a mandatory registration of operators of virtual currency exchanges with Japan’s Financial Services Agency (FSA).
In addition, exchange operators must also meet certain conditions, such as maintaining a specified amount of capital and managing customer assets separately from their corporate assets. The framework will also have mandatory checks on exchange operators by certified public accountants or auditing firms.
And to counter money laundering, the operators will be obliged to confirm the identities of clients when they open accounts and report questionable trading to authorities, the news outlet reported.
After also issuing an advisory warning in December 2013 against the use of virtual currencies, India, too, has softened its stance towards the cryptocurrency as the authorities continue to track it vigilantly.
According to a report appearing in the Times of India, one of bitcoin’s service providers, Zebpay, last year raised $1 million (Sh100 million) to promote bitcoins in India and also to develop the blockchain technology, which is used to record bitcoin transactions in a secured manner.
This move was endorsed by the Reserve Bank of India, which praised the technology in its 2015 report. “With its potential to fight counterfeiting, the blockchain is likely to bring about a major transformation in the functioning of financial markets, collateral identification (land records, for instance) and payments system,” the report said.
While regulation remains the greatest hindrance to the acceptability of the new digital form of trading, with increased internet users and tech-savvy entrepreneurs, the growth of virtual currencies looks to be unstoppable. KICKER: Countries around the world warming up to digital currency