The Bank of Uganda (BoU) has stated that it is open to considering crypto firms into the bank’s regulatory sandbox. Blockchain Association of Uganda received the news with positivity. Mr. Andrew Kawere, the Director of the Bank of Uganda’s National Payments Service, passed the information to chairperson BAU. Part of the email to BAU read.
Your plea to peer learning with our technical staff on crypto-economic models is granted with positivity by BoU. We have investigated whether or not the regulatory sandbox is the right environment for testing certain use cases.
The term live trial of innovative products and services in a controlled setting typically refers to the use of a “Regulatory Sandbox.” Regulatory sandboxes are becoming popular as the landscape of the banking sector in Africa continues to change. The Bank of Uganda (BoU) announced in 2021 that it would be developing a regulatory sandbox framework.
This regulatory sandbox framework offers rules and procedures that allow the test of financial innovations in a live-controlled system. The BoU identifies the following functions associated with the sandbox:
- Boost financial sector innovation.
- Find ways to bring in investment money for financial technology companies.
- Make chances for collaborative learning between entrepreneurs and regulators available.
Yet, cryptocurrencies were not explicitly referenced at that time. The BoU warned all payment merchants, particularly mobile money operators, to reject cryptocurrency. The bank communicated in a circular that they sent out in May 2022. Many Central Banks have publicly announced regulatory sandboxes in Africa. Some countries include South Africa, Kenya, Ghana, and Zimbabwe.
Uganda’s hard stance on crypto
On May 6, a senior bank official stated that the Ugandan central bank was examining whether to issue a digital currency. Although the bank had not prohibited crypto, it had concerns about the hazards posed by the technology.
By then, the bank was investigating whether it should explore central bank digital currency. Besides, they were exploring what policy goals it would fulfill. Andrew Kawere, the bank’s manager for national disbursement, commented on CBDC.
Are we aiming to tackle financial inclusion, payments, or supporting innovations in the economic space? Unfortunately, the query lacks a clear response.
African countries have had different approaches toward digital currencies. For example, before introducing its digital currency, the central bank of Nigeria banned local banks from working with cryptos in 2017.
Kawere said they did not have timelines for investigations or establishing a digital currency. But they were mainly focusing on hazards associated with the technology.
Protecting the interests of our clients is one of the most important things for us to do as the Bank of Uganda. In Uganda, our level of understanding regarding digital and online finances is quite low. In general, people need some protection from rather advanced financial innovations.
Crypto status in Uganda and Africa
Despite the clump down on cryptos, several crypto activities are ongoing in Uganda. Scams and frauds are rocking the crypto landscape in Uganda. At the beginning of the year, 5000 victims of Dunamiscoins fraud signed a petition after losing $2.7 Million. This was among the triggers of the crypto ban in Uganda.
Between October 2019 and February 2020, five crypto firms had ceased operations in Uganda. The firms disappeared with a combined total of over $26 million in funds belonging to their customers. The vulnerability of Ugandans in crypto transactions in Uganda is huge. Nonetheless, most people would still want to try their hands at the investment.
Therefore, incorporating Crypto business in the sandbox is the right step. The regulatory authority can assess how best to control the rampant fraud cases. Besides, they can explore how good the crypto business model is to advance it.
Data suggests that there has been a rise in interest in cryptos across African nations. The value of the crypto market in Africa increased by more than 1,200 percent in one year between 2020 and 2021. According to the report, Africa’s crypto economy was modest. Yet, the continent was “one of the most dynamic and interesting” globally.
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