Bank of Uganda finally accepts crypto in its regulatory sandbox

the Bank of Uganda (BoU) has stated that it is open to considering crypto firms in the bank’s regulatory sandbox. block chain Uganda Association received the news positively. Mr. Andrew Kawere, Director, National Payments Service, Bank of Uganda, passed the information on to the BAU President. Part of email to BAU read.

Your request for peer learning with our technical staff on crypto economic models is positively granted by BoU. We have investigated whether or not the regulatory sandbox is the right environment to test certain use cases.

andres kawere

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 popular as the landscape of the banking sector in Africa continues to change. The Bank of Uganda (BoU) announced in 2021 that it would develop a sandbox regulatory framework.

This sandbox regulatory framework offers rules and procedures that allow the testing of financial innovations in a live controlled system. The BoU identifies the following functions associated with the sandbox:

  • Promote innovation in the financial sector.
  • Find ways to attract investment money for fintech companies.
  • Provide opportunities for collaborative learning between entrepreneurs and regulators.

However, cryptocurrencies were not explicitly mentioned at the time. The BoU warned all payment merchants, particularly mobile money operators, to reject cryptocurrencies. The bank disclosed this 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 cryptocurrencies

On May 6, a senior banking official stated that the Ugandan central bank was examining the possibility of issuing a digital currency. Although the bank had not banned cryptocurrencies, he was concerned about the dangers posed by the technology.

By then, the bank was investigating whether it should explore the central bank’s digital currency. In addition, they were exploring what political goals it would serve. Andrew Kawere, the bank’s national disbursement manager, commented on CBDC.

Is our goal to address financial inclusion, payments, or support innovations in the economic space? Unfortunately, the query lacks a clear answer.

andres kawere

African countries have had different approaches towards digital currencies. For example, before introducing its digital currency, the Nigerian central bank banned local banks from dealing with cryptocurrencies in 2017.

Kawere said they had no timeframe for investigations or the establishment of a digital currency. But they were primarily focusing on the dangers associated with the technology.

Protecting the interests of our clients is one of the most important things for us as Bank of Uganda. In Uganda, our level of understanding of online and digital finance is quite low. In general, people need some protection from fairly advanced financial innovations.

andres kawere

Crypto status in Uganda and Africa

Despite the accumulation of crypto, various crypto activities are ongoing in Uganda. Scams and fraud are shaking up the crypto landscape in Uganda. Earlier this year, 5,000 Dunamiscoin fraud victims signed a petition after losing $2.7 million. This was one of the triggers for the crypto ban in Uganda.

Between October 2019 and February 2020, five crypto companies ceased operations in Uganda. The firms disappeared with a combined total of more than $26 million in funds belonging to their clients. The vulnerability of Ugandans in crypto transactions in Uganda it is huge. Nonetheless, most people would still want to try their hand at investing.

Therefore, bringing Crypto business into the sandbox is the right step. The regulatory authority can assess the best way to control cases of rampant fraud. Also, they can explore how good the crypto business model is going forward.

The data suggests that there has been a surge in interest in cryptocurrencies in African nations. 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. However, the continent was “one of the most dynamic and interesting” in the world.