Bank of Uganda (BoU) is finally open to the idea of cryptocurrency businesses participating in its Regulatory Sandbox. They have invited members of the Blockchain Association of Uganda (BAU) to share their knowledge with Central Bank of Uganda.
A letter from the bank dated June 1 to the chairperson of the BAU, Kwame Rungunda, referred to a meeting between the two parties in early May. The Central Bank also advised the country’s crypto advocacy group to brush up on the sandbox regulations before it made time for further technical discussions. Blockchain Association of Uganda (BAU) received the news with positivity. Andrew Kawere, the Director of the Bank of Uganda’s National Payments Service, passed the information to chairperson BAU. Part of the email to BAU read, “Your plea to peer learning with our technical staff on crypto-economic models is granted with positivity by BoU. We have investigated whether the regulatory sandbox is the right environment for testing certain use cases”
The term refers to the live trial of innovative products and services in a controlled setting typically refers to the use of a regulatory sandbox. The latter are becoming popular as the landscape of the banking sector in Africa continues to change. The Bank of Uganda announced in 2021 that it would be developing a regulatory sandbox. Yet, cryptocurrencies were not explicitly referenced at that time. BoU warned all payment merchants, particularly mobile money operators, to reject cryptocurrency. The bank communicated in a circular that they sent out in May 2022. Many Central Banks have publicly announced regoxes in Africa. Some countries include South Africa, Kenya, Ghana, and Zimbabwe.
On 6 May, a senior bank official stated that the Central Bank of Uganda was examining whether to issue a digital currency. Although the bank had not prohibited crypto, it had concerns about the hazards posed by the technology. By then, the bank was investigating whether it should explore central bank digital currency. Besides, they were exploring what policy goals it would fulfill.
African countries have had different approaches toward digital currencies. For example, before introducing its digital currency, the Central Bank of Nigeria banned local banks from working with cryptos in 2017. Kawere said they did not have timelines for investigations or establishing a digital currency. But they were mainly focusing on hazards associated with the technology. “Protecting the interests of our clients is one of the most important things for us to do as the Bank of Uganda. In Uganda, our level of understanding regarding digital and online finances is quite low. In general, people need some protection from rather advanced financial innovations.”
Despite the clamp down, several crypto activities are ongoing in Uganda. Scams and frauds are rocking the crypto landscape. At the beginning of the year, 5,000 victims of Dunamiscoins fraud signed a petition after losing $2.7 million. This was one of the key triggers of the crypto ban in Uganda.
Between October 2019 and February 2020, five crypto firms had ceased operations in Uganda. The firms disappeared with a combined total of over $26 million in funds belonging to their customers. The vulnerability of Ugandans in crypto transactions is huge. Nonetheless, quite a number of people still want to try their hand at crypto investment.
Incorporating crypto business in the sandbox is the right step. The regulatory authority can assess how best to control the rampant fraud cases. Besides, they can explore how good the crypto business model is to advance it. Data suggests that there has been a rise in interest in cryptos across African nations. The value of the crypto market in Africa increased by more than 1,200 per cent within a year between 2020 and 2021. According to the report, Africa’s crypto economy was modest. Yet, the continent is celebrated as one of the most dynamic and interesting globally.
Around the continent, other countries are adopting a crypto-friendly approach, the Central African Republic became the first African country to adopt Bitcoin (BTC) as a legal tender and only the second country ever to do so. The state-owned Kenyan energy company KenGen also invited Bitcoin miners to move to Kenya to buy up its excess power generated from geothermal energy so that its government could generate revenue through crypto mining fees or taxes.
For now, the future of crypto in Africa remains to be seen.