The Bank of Uganda (BoU) has said it is open to considering crypto firms in the bank’s regulatory sandbox. Blockchain Association of Uganda received the news positively. Mr Andrew Kawere, National Payments Manager, Bank of Uganda, passed the information on to the BAU Chairman. Read part of the email to BAU.
Your call for peer learning with our technical staff on cryptoeconomic models has been positively answered by BoU. We investigated whether the regulatory sandbox is the right environment to test certain use cases.
The term live testing of innovative products and services in a controlled environment generally refers to the use of a “regulatory sandbox”. Regulatory sandboxes are becoming increasingly popular as the banking landscape in Africa continues to change. The Bank of Uganda (BoU) announced in 2021 that it would develop a regulatory sandbox framework.
This regulatory sandbox framework provides rules and procedures for testing financial innovations in a live monitored system. The BoU identifies the following features associated with the sandbox:
- Stimulate innovation in the financial sector.
- Find ways to bring in investment funds for fintech companies.
- Creating learning opportunities for cooperation between entrepreneurs and regulators.
Yet at the time, no explicit reference was made to cryptocurrencies. The BoU has warned all payment vendors, especially mobile money operators, to refuse cryptocurrency. The bank communicated in a circular that it sent in May 2022. Many central banks have publicly announced regulatory sandboxes in Africa. Some countries are South Africa, Kenya, Ghana and Zimbabwe.
Uganda’s tough stance on crypto
On May 6, a senior banking official said Uganda’s central bank was considering issuing a digital currency. Although the bank did not ban cryptography, it was concerned about the dangers of the technology.
At the time, the bank was investigating whether the central bank’s digital currency should be investigated. In addition, they explored the political goals it would achieve. Andrew Kawere, director of the domestic payout bank, commented on the CBDC.
Do we strive to fight financial inclusion, payments or support innovations in the economic space? Unfortunately, the question does not have a clear answer.
African countries have had different approaches to digital currencies. For example, before the central bank of Nigeria introduced its digital currency, in 2017 the central bank of Nigeria banned local banks from working with cryptos.
Kawere said they don’t have timelines for researching or setting up a digital currency. But they mainly focused on the dangers of the technology.
Protecting the interests of our customers is one of the most important things we can do as a Bank of Uganda. In Uganda, our level of knowledge regarding digital and online financing is quite low. In general, people need some protection from quite sophisticated financial innovations.
Crypto Status in Uganda and Africa
Despite the deteriorating cryptos, there are several crypto activities going on in Uganda. Scams and fraud are turning the Ugandan crypto landscape upside down. Earlier this year, 5,000 victims of the Dunamiscoin fraud signed a petition after losing $2.7 million. This was one of the reasons for the crypto ban in Uganda.
Between October 2019 and February 2020, five crypto companies had gone bankrupt in Uganda. The companies disappeared with a total of more than $26 million in funds from their clients. The vulnerability of Ugandans in crypto transactions in Uganda is enormous. Yet, most people still want to give it a shot at investing.
Therefore, including Crypto activity in the sandbox is the right step. The supervisor can assess how best to combat endemic cases of fraud. They can also examine the quality of the crypto business model to move it forward.
The data suggests that interest in cryptos has increased in African countries. The value of the crypto market in Africa has increased by more than 1,200% in one year between 2020 and 2021. According to the report, the crypto economy in Africa was modest. Still, the continent was “one of the most dynamic and interesting” in the world.