Kenya’s Treasury Secretary Henry Rotich reportedly has two weeks make a decision regarding cryptocurrencies’ future as legal tender, according to Coingape.
Since 2015, the status of digital currencies in the African nation has been tenuous, with both the central bank and the government taking a prohibitive stance, the latter sending circulars to banks to warn them of the dangers of becoming involved with cryptocurrencies. The outcome of years of indecision regarding cryptocurrency legislation has unintentionally created a vibrant market, largely ignored by the government… until now. The circular warns banks to keep away:
“The purpose of this circular therefore is to caution all institutions against dealing in virtual currencies or transacting with entities that are engaged in virtual currencies. You are advised not to open accounts for any person dealing in virtual currencies such as Bitcoin. Failure to comply with this directive will lead to appropriate remedial action from the Central Bank.”
It wasn’t until May of this year until any concrete measures were proposed in order to legislate the space with the idea of a special unit. The Capital Markets Authority (CMA) in Nairobi, Kenya proposed the creation of a unit to handle cryptocurrency related issues, which would include the Central Bank of Kenya (CBK) although it remains unclear what, if anything, has materialized from the proposal.
Despite the announcement, it appears that Kenya has met with strong resistance from banks to legalizing digital currencies despite positive positions taken by legislators regarding blockchain technology.
The Kenyan Parliament now wants Secretary Rotich to explain why trade in Bitcoin and other virtual currencies have continued to take place without legislation over time. The Finance and National Planning Committee’s Chair Joseph Limo recently called for explanations.
“We are surprised to hear that even the CBK is not aware that there is a lounge at Kenyatta University, an ATM in town, and a hotel in Nyeri which trade in Bitcoins. There is a bigger problem in Kenya since people are trading billions in virtual space yet the Treasury has not licensed and taxed it…”, said Limo.
Rotich explained to MPs that discussions were ongoing globally regarding minimizing risks due to cryptocurrency misuse and money laundering, while Kenya’s government was still considering its own options. He stressed the instability of digital currencies, speaking of maintaining a “delicate balance between supporting innovation and killing it”, also adding he wasn’t aware of exchanges operating locally.
The black market in cryptocurrencies is actually vibrant in the country despite the Treasury Secretary’s claims. As Michael Kimani, Chairman of the Blockchain Association of Kenya, explains, lack of legislation has led to this market which many locals profit from because of Kenya’s somewhat simple definition of what it regards as “currency”.
Under the Central Bank of Kenya Act, Chapter 491:
- “Currency” is defined as the currency of Kenya or foreign currency;
- “Currency of Kenya” means banks, notes and coins issued by the Bank under section 22(1); and
- “Foreign currency” means bank notes or coins which are or have at any time been legal tender in any territory outside Kenya.
The loophole for cryptocurrencies in Kenya is that there is no existing definition which would enable them to find a place in law under the central bank’s guidelines. Kimani clarifies the governments’ problem:
“Virtual currencies fall of short of these antiquated definitions of currencies. They are digital representations of value that are not issued by a central bank, public authority and not necessarily pegged to units of domestic or foreign currencies. Often, they are denominated in their own units of account and have no physical paper equivalent.”
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