The Bank of Uganda (BoU) has said it is open to considering crypto businesses in the bank’s regulatory sandbox. Blockchain Association of Uganda received the news with positivity. Mr. Andrew Kawere, National Payments Manager, Bank of Uganda, conveyed the information to the BAU Chairman. Part of the email to BAU read.
Your call for peer learning with our technical staff on crypto-economic models is granted with positivity by BoU. We investigated whether or not the regulatory sandbox is the right environment to test certain use cases.
The term live testing of innovative products and services in a controlled setting 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:
- Stimulate financial sector innovation.
- Find ways to bring in investment funds for fintech companies.
- Create collaborative learning opportunities between entrepreneurs and regulators.
Yet cryptocurrencies were not explicitly referenced at that time. The BoU has warned all payment merchants, especially mobile money operators, to reject cryptocurrency. The bank communicated in a circular it 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 tough stance on crypto
On May 6, a senior bank official said that Uganda’s central bank was considering whether to issue a digital currency. Although the bank did not ban cryptography, it was concerned about the dangers posed by the technology.
At that time, the bank was investigating whether to explore central bank digital currency. In addition, they explored the political goals it would achieve. Andrew Kawere, the bank’s director for domestic disbursements, commented on the CBDC.
Are we aiming to fight financial inclusion, payments or support innovations in the economic space? Unfortunately, the question has no clear answer.
African countries have had different approaches towards 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 have no timelines for investigations or establishing a digital currency. But they mainly focused on the dangers associated with the technology.
Protecting the interests of our customers is one of the most important things we can do as Bank of Uganda. In Uganda, our level of understanding regarding digital and online finance is quite low. In general, people need some protection against rather advanced financial innovations.
Crypto Status in Uganda and Africa
Despite the worsening cryptos, there are several crypto activities going on in Uganda. Scams and frauds are rocking the Ugandan crypto landscape. Earlier this year, 5,000 victims of the Dunamiscoin fraud signed a petition after losing $2.7 million. This was one of the triggers for Uganda’s crypto ban.
Between October 2019 and February 2020, five crypto firms had gone out of business in Uganda. The companies disappeared with a combined total of more than $26 million in funds belonging to their customers. The vulnerability of Ugandans in crypto transactions in Uganda is enormous. Nevertheless, most people would still like to try their hand at investing.
Therefore, incorporating Crypto activity into the sandbox is the right step. The regulator can assess how best to control endemic cases of fraud. Also, they can explore the quality of the crypto business model to advance it.
The data suggests that there has been an increase in interest in cryptos in African countries. The value of the crypto market in Africa increased by more than 1,200% in one 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.
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Bank Of Uganda Finally Accepts Crypto In Its Regulatory Sandbox
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