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Cryptocurrency Regulation: Africa Slowly Picking Up The Pace

Why have African governments been slow with the adoption of cryptocurrencies?

Maybe they have good intentions and are just trying to protect their young citizens?

Alternatively, could it be because Africa has a crop of old leaders who can’t envision a future without paper cash?

Which is it?

From Nigeria to Kenya and South Africa to Egypt, a lot of the younger generation have jumped unto the Bitcoin train, disregarding the scepticism of regulators on the continent.

In Nigeria, the Central Bank of Nigeria (CBN) has distanced itself from the “bitcoin movement” twice and even warned it’s citizens that bitcoin investments had no legal cover.

However, Bitcoin trading is booming in Nigeria. It must be said, though, that these boom in trading has been partly aided by MMM, a busted online Ponzi scheme. The MMM scheme eased the introduction of bitcoin trading into mainstream awareness.

The CBN’s first public reaction to virtual currencies was in a January 12, 2017 circular to Nigerian banks (PDF) warning them to deal in cryptocurrencies at their own risk, pending substantive regulation.

bitcoin trade volume

Some people have wrongly interpreted the circular as a ban, but officials at the Central Bank have since acknowledged that they cannot stop Bitcoin because it is obviously not within their control.

“Just don’t come crying to us if you lose your investment,” the CBN seems to infer.

When you do a quick search on Google Trends, it  shows 3 African countries rank top 10 worldwide for the search term “Bitcoin.”  These countries are South Africa (1), Ghana (5) and Nigeria (10).

Let’s use these African countries to examine what cryptocurrency regulation is like on the continent.

“Africa’s regulators are adopting a ‘Wait and See’ approach” – Ecobank report says.

The graph below shows the current regulatory stance of countries around the world.

South Africa cryptocurrency regulation: Let’s tax this thing.

The South African government has to be the friendliest to the Bitcoin ecosystem in Africa. The South African Revenue Services, the revenue arm of the South African government, has been exploring ways in which cryptocurrency investments can be properly taxed. In April 2018, the South African Revenue Service (SARS) said in a statement that citizens must declare income derived from cryptocurrency investments as part of their capital gains statement.

“The onus is on taxpayers to declare all cryptocurrency – related taxable income in the tax year in which it is received or accrued. Failure to do so could result in interest and penalties,” the statement explained.

The South Africa Reserve Bank (SARB) launched a project in 2017 dubbed “Project Khokha” to explore the distributed ledger technology – Blockchain. Early 2018, the bank completed a 14-week “realistic” proof-of-concept on the Blockchain that managed to settle the country’s every day 70,000 daily payment transactions within two hours, taking an average of 1–2 seconds for each transaction – and all while preserving full anonymity. Banks including Absa, Capitec, Discovery Bank, FirstRand, Investec, Nedbank and Standard Bank all participated in this live blockchain experiment.

Ghana cryptocurrency regulation: Wait, while we look into this thing. It might take forever though.

Bitcoin legality
Image by: Blog Guava Africa

On January 22nd 2018, the Bank of Ghana (BoG) announced that trading Bitcoin in the country is not yet legal as it isn’t a recognised legal tender in the country.

Here’s what the BoG thinks: “The Bank of Ghana wishes to notify the general public that these activities in digital currency are currently not licensed under the Payments System Act 2003 (Act 662). The Bank of Ghana is currently investing many resources to enhance further the payments and settlements system, including digital forms of money and also to introduce cybersecurity guidelines to safeguard electronic and online financial transactions.”

The apex bank is still awaiting parliamentary decision on the Payment Systems & Services Bill since the beginning of 2018.

Kenya cryptocurrency regulation: We’re still looking into it.

Appetite for digital currencies remains active in Kenya. Volumes transacted are the third highest in Africa – behind South Africa and Nigeria. After the governor of the Central Bank of Kenya, Dr Patrick Njoroge, compared Bitcoin to a pyramid scheme in 2017, there’s some evidence the bank may be willing to soften its position going forward.

In 2018, President Uhuru Kenyatta directed that a Blockchain and AI taskforce be created to explore the use of these technologies within Kenya’s existing economic framework. Also, the Capital Markets Authority, Central Bank of Kenya, Insurance Regulatory Authority, SACCOs Societies Regulatory Authority and the Retirement Benefits Authority are due to meet to discuss how to regulate virtual currencies.

Nigeria cryptocurrency regulation: We might have been wrong to overlook this thing.

The Central Bank of the continent’s largest economy, Nigeria,  had repeatedly warned its citizens and local banks against doing business with cryptocurrency exchanges. However, with the economy enjoying some stability over the past few months in 2018, the bank’s Head, Payments System Policy and Oversight, Musa Jimoh, disclosed has started looking into these virtual currencies from a policy standpoint.

At a cryptocurrency conference held in Lagos in September 2018, Jimoh alluded to the fact that the apex bank“cannot stop the tide of waves generated by the blockchain technology and its derivatives.”

He said the bank has “taken measures to create four departments in the institution that are looking forward to harmonise the white paper on cryptocurrencies.”

All in all, it looks like users are still bullish on cryptocurrency investments all over the continent and regulatory authorities are either working their way to creating policies, cashing in on the craze or warning against adoption.

One thing is sure, though, African regulators aren’t looking away.

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