The subject of cryptocurrencies has always been contentious in many countries. There are a number of countries where cryptocurrencies still remain banned. Here in Zimbabwe, cryptocurrencies are not yet formally recognized as a financial product. There are very few African countries where cryptocurrencies are legal. Recently Namibia joined the short list of African countries allowing cryptocurrency transactions between willing parties. A few days ago, a government gazette was published in South Africa, where it was stated that cryptocurrency assets are now recognized as financial products. Could Zimbabwe be next?
What does This mean In South Africa?
The Need For Licensing
Under South Africa’s Financial Advisory and Intermediary Services (FAIS) Act, cryptocurrency assets are now recognized as financial products. ‘Cryptocurrency assets’ here refers to any digital representation of value not issued by a central bank but can be traded, transferred or stored electronically by natural and legal persons for payment, investment or other forms of utility. It also means that cryptocurrency asset service providers are mandated to apply for licensing. The period to make such applications has been set to run from 1 June to 20 November 2023.
The Delicate Regulation Dynamic
A little over a month ago, the South African Reserve Bank encouraged banks to find ways to work with cryptocurrency service providers, and now cryptocurrencies have been brought into law. . On one end, this addresses the ever-topical issue of the need for cryptocurrencies to be regulated. On the other hand, it raises concerns as well since the unique value proposition of cryptocurrencies is decentralization. I will admit, though, striking it is a delicate balance.
That is where the bone of contention is – central banks wanting to regulate something that is designed to be decentralized. No wonder some countries resort to just banning cryptocurrencies outright. Even when you look at this recent development in South Africa, you will notice the insistence on using the term crypto assets. It, in a way, seems like avoiding the use of the term cryptocurrencies.
Two Important Clarifications
Not Legal Tender
When you see or hear, ‘cryptocurrency assets are now recognized as financial products,’ do not get the wrong impression. It does not mean that cryptocurrency assets are now legal tender. Legal tender simply means people must accept it for transaction settlement. The Financial Sector Conduct Authority’s Regulatory Frameworks Department clarified this during a press conference.
You would think that NFTs are included in this latest declaration, but they are not. In fact, the NFTs domain is still being monitored. It does come as a surprise because NFTs should have been included. I do understand where the concerns could be coming from. For example, the fear that legitimatizing somewhat can imply allowing money laundering. Again, it is that delicate balance issue, so it is tricky.
Is It Worth Celebrating?
Thus when you look at this latest declaration, it might not really mean much. Yes, in a way, it might seem progressive, but objectively speaking, it does not mean much. The good thing that seems to come out of this is the possibility for South Africans to now have home-grown cryptocurrency exchanges. Cryptocurrencies are not yet legal tender, but I believe them becoming legal tender is what most proponents want. Plus, the issue of regulating something meant to be decentralized is problematic to say the least. The true winner here is the South African Revenue Services (tax authority) which can now apply its full taxation powers to cryptocurrency gains.
Could Zimbabwe Be Next?
The Zimbabwe context is complicated and not clear-cut. One moment it seems the government is warming up to cryptocurrencies; the next, it is not. It really is difficult to tell. For example, Zimbocash started running a pilot program in Bulawayo in April 2022. The pilot entailed a supermarket in Njube, Bulawayo accepting ZASH as payment for goods. The pilot program was such that you could go and purchase US$2 worth of goods using ZASH. Zimbocash partnered with ZiTenga in order to avail the supermarket with a cash-out facility for ZASH purchases. This all equates to cryptocurrency being a formally recognized financial product in Zimbabwe. Yet the central bank is yet to legitimize cryptocurrencies in Zimbabwe. I guess they are gradually warming up to the idea of legitimizing cryptocurrencies in Zimbabwe.
On 13 October 2022, the Financial Intelligence Unit (FIU) hosted the inaugural Anti-Money Laundering (AML) Conference. Zimbocash made a presentation. That in itself speaks volumes about how the central bank is embracing dialogue with cryptocurrency asset service providers. However, the Zimbabwe central bank’s standing position is that cryptocurrencies are not legal tender since they are neither issued by them nor guaranteed by the government. It is also on public record that the RBZ is exploring creating a central bank digital currency (CBDC). Nigeria already launched theirs in 2021 and 10 other countries have worldwide.
The truth is a lot of what is happening in Zimbabwe with cryptocurrencies and the central bank digital currency is still primarily hazy. The regulatory frameworks are not yet crystal clear. It somehow speaks to how hesitant the government is. It can be and must be unsettling dealing with something new and sophisticated. Especially when you are unsure whether or not you will be able to control it fully, you can develop cold feet. Only time will tell.