The Zambian central bank said on Oct. 12 that cryptocurrencies like bitcoin core and bitcoin cash aren’t legal tender, cautioning that those transacting in such will have no one to blame in the event of market failure. It appears that the bank issued the decree because, as a traditional issuer of the depreciating local fiat unit, the kwacha, it has a responsibility to promote its own currency.
Central Bank Lacks Legal Backing to Completely Ban Cryptocurrency
The Bank of Zambia (BoZ) understands that it neither has the power nor the legal backing to shut down the nascent cryptocurrency market in the southern African country. It would need parliament to amend the law that enabled its establishment for BoZ to be able to claim any authority over cryptocurrency investments or trading.
“The bank has no legal provision for regulation of the (digital currency) market,” Chibamba Kanyama, a Zambian economist, told news.Bitcoin.com. Kanyama said: “The crypto market developed well after the BoZ Act was instituted and there has been no effort on the part of government to revise it. Even if the act was revised, the bank would end up being publicly liable for something that is outside its domain. This means the BoZ is in order to provide this disclaimer and guidance to the Zambian market.”
On Friday, the Zambian central bank issued a statement warning people using or trading cryptocurrency that they were doing so at their own risk and would have no recourse to any regulatory authority in the event of theft or fraud. It said that though bitcoin and other cryptocurrencies retained “some monetary characteristics, such as, being used as a means of payment on a person to person basis, cryptocurrencies are not legal tender in Zambia.”
On its charge sheet, the Zambian financial regulator accused virtual currencies of increasing the risk of “money laundering, financing activities of terrorism and general consumer protection risks such as fraud and hacking.” These claims are based on the actions of regulators from elsewhere, and not the bank’s own investigations.
Citing a section of the BoZ Act which “vests the right to issue notes and coins exclusively” to it, the bank said it “does not oversee, supervise nor regulate the cryptocurrency landscape. Consequently, any and all activities related to the buying, trading or usage of cryptocurrencies are performed at owner’s risk.”
Desperate Zambians Look for Safe Haven
The Zambian crypto market is only just starting to take off and there is no known digital currency exchange operating inside the country. Most Zambians buy their digital coins peer-to-peer or from online exchanges domiciled elsewhere around the world, using globally accepted bank cards. The country’s Securities and Exchange Commission has said virtual currency could neither be classified as a security nor commodity according to existing national laws. It warned people against dealing with self-proclaimed cryptocurrency educators and advisors.
Chibamba Kanyama, the Zambian economist, said there is a sense of desperation fueled by worsening economic conditions, which is pushing people towards safe havens like cryptocurrency. “Zambians have been desperate on profitable investment vehicles for lack of a liquid stock market,” he explained.
“Others are seeking for high interest or high yield investment vehicles from across the country such as offshore accounts. This is because interest rates on savings from commercial banks are below the inflation rate. The crypto market is the latest one and seems to have attracted a number of investors, some of them civil servants and retirees seeking to reinvest their pensions,” Kanyama added.
A Central Bank Seeking Relevance
The Bank of Zambia, which joins a long list of African central banks to warn against crypto, said it felt compelled to speak because of observable rising public interest in virtual money. It also intended “to safeguard the interests of members of the public and to maintain the integrity of the financial system.”
Bitcoin’s often wild swings have not endeared it to global financial gurus steeped in tradition. But it was largely a measured and cautious statement by the BoZ, a central bank keen on reasserting its relevance in an economy battered by high foreign debt and a declining local fiat currency.
The kwacha, recalibrated in 2012 with the removal of three zeroes, has been in free-fall over the past few months. In September, the currency nearly touched a three-year low when it traded at 11.025 against the United States dollar, in a development that induced panic in local markets.
“Regulation should not constrain but enable innovation,” said the BoZ, clearly wishing to avoid the examples of neighboring Zimbabwe and Namibia, which have altogether banned cryptocurrency. “[We] will continue to actively monitor all developments [in the crypto markets],” it said.
What do you think about the reaction of African central banks to cryptocurrency? Let us know in the comments section below.
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