Kenya has no clear regulation governing the digital currency space, something that has left the sector open to fraud. There is an urgent need for the Central Bank of Kenya (CBK) to enhance the adoption of cryptocurrencies by passing the relevant regulations.
A report published in 2020 by Chainlysis on the Global Global Cryptocurrency Adoption Index listed Kenya among the 10-top cryptocurrency-adopting nations in the world. But despite the heavy adoption of this blockchain technology, Kenya’s heavy-handed regulatory response and slow compliance is hindering digital economy growth.
Cryptocurrencies, which are based on blockchain technology, are attractive to many consumers, particularly as a mechanism for managing currency devaluation and avoiding high transaction costs. It is an essential building block of the digital economy; its growing adoption and use by consumers and corporates across the globe points to the direction of change.
Several economies in Africa are developing digital financial services, and in the larger markets, policymakers have taken measures to support financial institutions’ digital transformation.
A good example is the Nigerian Securities and Exchange Commission. It announced that it would recognize digital assets as securities, committing to formulating regulations and policies that will help encourage innovation and adoption in the market. But the same can’t be said for Kenya.
According to experts, Kenya has no clear or stellar regulation governing the digital currency space, something that has left the sector open to fraud. There is an urgent need for the Central Bank of Kenya (CBK) to enhance the adoption of cryptocurrencies by passing the relevant regulations.
Of course, the sector has its fair share of challenges, but there is no denying that its adoption presents significant advantages including offering a boost to the remittances Kenya receives as well as providing easy access to global markets.
These advantages are expedited by the commonality of crypto payment use in many parts of the continent. It has allowed many businesses and individuals to make fast, cost-efficient transactions, increasing productivity in some of the most underbanked communities.
A 2019 report presented by the Blockchain & Artificial Intelligence task force strongly recommended that Kenya accepts the use of cryptocurrency due to the inevitable global trend. According to the report, Kenya’s CBK should look into the creation of a digital currency correlating with an individual’s digital identity.
But the regulator has been slow in supporting the use of this digital currency, with perpetual debates surrounding regulation development. This is despite the fact that Kenya has been experiencing a steady growth in the crypto industry spurred by institutional investors using bitcoin making entry into the market.
Although bitcoin has become renowned as digital gold, its adoption remains attractive to investors amidst inflation concerns. Still, the currency, alongside other cryptos is currently not regulated in Kenya or backed by the government. In a nutshell, they are not recognized.
Luckily, the CBK in June 2021 commenced discussions with other global central banks regarding the possibilities of entering the digital currency space.
According to Patrick Njoroge, Central Bank’s Governor, the move is in response to mushrooming of private cryptocurrencies which have made the regulator feel left out, thus the urgent need to create its own space.
That said, it is worth noting that Kenya’s potential is considerable. With a high mobile and internet penetration rate, banks and other financial institutions can leverage mobile apps, digital technology, and fintech partnerships to reach more consumers and create an inclusive economy.
It is time, for Kenya to take its first steps towards creating cryptocurrency laws by publishing a framework proposal, like South Africa, and commit to supporting the development of the crypto economy. After all, Kenya has the second-largest peer-to-peer traded volumes on the continent