The Bank of Uganda (BoU) has said it is open to considering cryptocurrencies in the bank’s regulatory sandbox. The Blockchain Association of Uganda received the news with positivity. Mr. Andrew Kawere, National Payments Manager, Bank of Uganda, passed the information to the BAU chairman. Part of the email to BAU read.
Your call for peer learning with our technical staff on cryptoeconomic models has been met with positivity by BoU. We investigated whether the regulatory sandbox is the right environment to test certain use cases.
The term life test of innovative products and services in a controlled environment generally refers to the use of a “regulatory sandbox”. Regulatory sandboxes are becoming 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 offers rules and procedures that allow testing of financial innovations in a live-controlled system. The BoU identifies the following functions associated with the sandbox:
- Stimulator of innovation in the financial sector.
- Find ways to raise investment funds for fintech companies.
- Create collaboration opportunities for learning between entrepreneurs and regulators.
However, cryptocurrencies were not delivered referenced at the time. BoU has warned all payment merchants, especially mobile money operators, to reject cryptocurrency. The bank communicated in a circular, the one issued in May 2022. Many central banks have publicly announced regulatory sandboxes in Africa. Some countries include South Africa, Kenya, Ghana and Zimbabwe.
Uganda’s tough stance on crypto
On May 6, a senior bank 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 to explore the central bank’s digital currency. In addition, they explored the political goals he could achieve. Andrew Kawere, the bank’s director of domestic disbursements, commented on the CBDC.
Are we aiming to combat financial inclusion, payments or support innovations in the economic space? Unfortunately, the question has no clear answer.
African countries have had different approaches to digital currencies. For example, before introducing its digital currency, Nigeria’s central bank banned local banks from working with cryptocurrencies in 2017.
Kawere said they have no deadlines for research or the establishment of a digital currency. But they focused mainly on the dangers associated with the technology.
Protecting the interests of our customers is one of the most important things we can do as the Bank of Uganda. In Uganda, our level of understanding of digital and online funding is quite low. In general, people need some protection against fairly advanced financial innovations.
Crypto status in Uganda and Africa
Despite the deteriorating cryptocurrencies, several crypto activities are underway in Uganda. Fraud and fraud shake the Ugandan crypto landscape. Earlier this year, 5,000 victims of Dunamiscoin scams signed a petition after losing $ 2.7 million. This was one of the reasons for Uganda’s crypto ban.
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 belonging to their customers. Uganda’s vulnerability in crypto transactions in Uganda is enormous. Nevertheless, most people still want to try investing.
Therefore, incorporating Crypto activity into the sandbox is the right step. The regulator can assess how best to control endemic cases of fraud. They can also explore the quality of the crypto business model to promote it.
The data showed that there has been an increase in interest in cryptocurrencies in African countries. The value of the crypto market in Africa increased by more than 1,200% in a year between 2020 and 2021. According to the report, the crypto economy in Africa was modest. Yet the continent was “one of the most dynamic and interesting” in the world.