Rwanda is making strides towards regulating cryptocurrency as it grapples with the growing influence of virtual assets on its economy. The National Bank of Rwanda (NBR) plans to establish a framework for cryptocurrency use and trade in collaboration with the Capital Market Authority by the first quarter of 2025. The initiative, reported by the New Times newspaper, reflects the increasing need for oversight in a sector that continues to expand rapidly despite inherent risks.
Rwanda’s Approach to Crypto Regulation
John Rwangombwa, governor of the NBR, acknowledged the dual nature of cryptocurrencies, which have made some individuals wealthy while causing significant losses for others. He described the sector as “risky” and advised citizens against participating in it without adequate knowledge.
The central bank’s concerns mirror global apprehensions surrounding cryptocurrencies. As digital currencies like Bitcoin operate on decentralized blockchain technology, they are difficult to regulate. This lack of oversight makes cryptocurrencies vulnerable to fraud, theft, and money laundering.
Despite the risks, cryptocurrencies have gained traction for their ability to facilitate direct transactions across borders, bypassing intermediaries such as banks or remittance services like Western Union. These digital currencies are especially appealing in regions with limited access to traditional financial systems.
Cryptocurrency is already a key tool for savings, international payments, and remittances. However, its volatility remains a significant challenge. Bitcoin, the largest cryptocurrency by market capitalization, exemplifies this volatility. Recently, its price surged to an all-time high of $90,000, demonstrating the speculative nature of the market.
Kenya’s Regulatory Push
Rwanda’s regulatory ambitions align with similar efforts in Kenya, where authorities are taking steps to harness the potential of cryptocurrencies while mitigating associated risks.
The Kenyan government announced plans to integrate real-time cryptocurrency transaction monitoring into its tax system. This initiative, spearheaded by the Kenya Revenue Authority (KRA), aims to address tax evasion and criminal activity within the sector.
Kenya’s cryptocurrency market is already substantial, with approximately four million users, according to the United Nations Conference on Trade and Development (UNCTAD). Between 2021 and 2022, cryptocurrency transactions in the country amounted to Ksh.2.4 trillion, nearly 20% of the nation’s gross domestic product (GDP).
A new legislative effort seeks to further regulate the industry. The Capital Markets (Amendment) Bill, 2023, introduced by Mosop MP Abraham Kirwa, proposes classifying digital currencies as securities under Kenyan law. This change would allow the government to impose capital gains taxes on cryptocurrency exchanges and excise duties on transactions.
The bill, approved by the National Assembly Finance Committee, is still under parliamentary consideration. If passed, it would provide a comprehensive legal framework for the crypto sector, enabling the government to tap into its economic potential while ensuring greater oversight.
Balancing Innovation and Risk
Both Rwanda and Kenya face a common challenge: balancing the benefits of cryptocurrency adoption with the need to protect citizens from its risks. Cryptocurrencies have proven their value in financial inclusion and efficiency, especially in regions with limited access to traditional banking.
However, the decentralized nature of these assets poses unique challenges for regulators. Without proper safeguards, the sector can be exploited for illegal activities, such as money laundering and fraud.
As Rwanda works towards its 2025 regulatory deadline, Kenya’s proactive approach in introducing tax policies and legislation could serve as a blueprint for other African nations. These efforts signify a shift towards embracing digital innovation while maintaining economic stability and consumer protection.
By developing robust regulatory frameworks, both countries aim to ensure that cryptocurrencies contribute positively to their economies without undermining their financial systems. This dual focus underscores the transformative potential of digital currencies in shaping Africa’s financial future.
