Use of cryptocurrency is not allowed in Uganda, says BoU

Bank of Uganda has warned members of the public that it has not has not licensed any company or any person to offer cryptocurrency services in Uganda.

“ This is to advise that Bank of Uganda has not licensed any institution to sell cryptocurrencies or to facilitate the trade in crypto-currencies. This is in line with the official government position as communicated by the Ministry of Finance, Planning and Economic Development in October 2019,” a circular by Andrew Kawere, the acting director of national payments system dated April 29 says.

In the last few years, cryptocurrency has gained popularity in Uganda, especially in the urban centres.

Many Ugandans, especially professionals seeking a supplementary income and the unemployed have invested in cryptocurrencies in a bid to make a killing.

However, on several occasions, many of these have been fleeced of their monies.

In the April, 29, notice, BoU notes there are several media reports and adverts telling the public that they can covert cryptocurrencies into mobile money and vice versa which the Central Bank says is not true.

“We are also aware that such a conversion cannot happen without the participation of the Payment Service Providers or Payment System Operators,” BoU says.

The Central Bank has consequently warned all licenced entities under the National Payment Systems Act, 2020 to desist from facilitating cryptocurrency transactions.

“Bank of Uganda shall not hesitate to invoke its powers under Section 13(1)(b)and (f) of the NPS Act 2020 for any licences that will be found in breach of the above directive.”

Gov’t position

The Central Bank also referred members of the public to a 2019 circular by the Ministry of Finance in which it gave government’s position in regards the use of cryptocurrency in Uganda.

According to the 2019 circular, the Finance Ministry said despite the emergence of the practice of using, holding, and trading in cryprocurrencies in the country, the holders bear the risk since the same is not issued or regulated by any government or central bank in any part of the world.

“This is to inform the general public that the government of Uganda does not recognize any crypto-currency as legal tender in Uganda. The government of Uganda has also  not licensed any organization in Uganda to sell crypto-currencies or to facilitate the trade in crypto-currencies and so these organizations are not regulated by the government or any of its agencies,” the 2019 circular reads in part.

The Ministry of Finance said that as such, unlike other owners of financial assets who are protected by government regulation, holders of crypto-currencies in Uganda do not enjoy any consumer protection should they lose the value assigned to their holdings of crypto-currencies, or should organization facilitating the use, holding or trading of crypto-currencies fail for whatever reason to deliver the services or value they have promised.

Risks

Government in the circular warned that most cryprocurrencies  such as Bitcoin and Ethereum are not backed by assets or government guarantees and therefore holders of these crypto-currencies are fully exposed to the risk of loss or diminishing value as the issuers are not obliged to exchange them for legal currency or other value.

“Crypto-currencies tend to change value rapidly over time. While holders of crypto-currencies may make profits when their value rises, they will be exposed to losses when their value falls.  The nature of crypto-currencies  make them attractive for use in criminal transactions such as money laundering, sale of prohibited goods and services, and fraudulent venture such as ponzi and pyramid schemes,” the Ministry of Finance warned.

Cryptocurrency

Cryptocurrencies are digital assets that are designed to effect electronic payments without the participation of a central authority or intermediary such as a Central Bank or licensed financial institution.

Cryptocurrencies may  be used to effect anonymous electronic payments or bought and held for speculative purposes in the expectation that their value will rise at a future time, whereupon they could be sold for a profit.

However, this  digital payment system  doesn’t rely on banks to verify transactions presenting a risk to members of the public.

The development comes at time when 1,000 Ugandans lost over shs3 billion in online digital transactions between 2018 and 2020 to a quack cryptocurrency dealer.

John Mwangutsya, the director of Crypto Bridge African Limited was last month arrested by police for defrauding Ugandans under the guise of selling them cryptocurencies.

To this end, members of the public would pay up to shs10 million after being promised to get 6% in a week's period and these would be asked to recruit others.

Victims from  Kampala, Masaka, Wakiso, Kabarole, Bushenyi, Ibanda and  Kagadi among other parts of the country lost billions of money when the company abruptly closed and the owner went into hiding.

Many such schemes have happened in Uganda over the years and members of the public have lost their money .