BoG reiterates cautionary stance on cryptocurrencies

The Bank of Ghana (BoG) has reiterated its cautionary stance to institutions it licences as well as the wider public on the use and trade of cryptocurrencies within its jurisdiction, citing glaring existing risks which it believes could jeopardise the nation’s financial sector if left unchecked.

This comes as the watchdog has gained a robust “institutional understanding” of key concepts in the burgeoning digital finance space by monitoring developments across the globe and reviewing “several regulatory and global standards-setting bodies across various jurisdictions”.

Governor of the central bank Dr. Ernest Addison disclosed this in keynote remarks at the 2022 Annual Bankers’ Dinner, also known as the Governor’s Day, organised by the Chartered Institute of Bankers (CIB) in his honour.

“The Bank still stands by its cautionary statement to the public on the dangers associated with crypto transactions as contained in several notices in the past. Interested parties need to be wary about potential losses that could occur when trading in crypto. The Bank stands by its earlier directives and the notices issued on March 9 2022, that all licenced institutions should refrain from facilitating crypto transactions via their platforms or agent outlets,” he emphasised.

In the afore-cited directive, and a similar one issued in 2018, the financial sector regulator stated clearly that cryptocurrencies – the most popular being Bitcoin (BCT) – remain unregulated under any laws in the country, and as such do not have any safeguards since they are not backed by guarantees.

The Governor however added that his outfit will not impose an outright ban on cryptocurrencies, as it considers such a line of action futile due to the decentralised and borderless nature of the asset class.

He also stated that the BoG will continue to keenly monitor happenings in the space and allow for the development of crypto and blockchain-leaning products within the confines of its regulatory sandbox, even as it works with other regulators toward a possible regulatory framework.

“In all of these, the clearest takeaway for the Bank is the fact that cryptocurrencies are digital assets and not currency; and inasmuch as crypto is associated with other key risks including volatility, cyber theft, loss of funds with a potential threat to financial stability, an outright ban has proven ineffective mainly due to its decentralised and borderless nature.

“Consequently, the Bank intends to continue allowing blockchain in our regulatory sandbox as the first step while we continue to examine a comprehensive regulatory framework for the digital asset industry,” Dr. Addison continued.

Global developments

Regulators have been on edge recently, as cryptocurrencies have come under renewed scrutiny following a series of scandals in the ecosystem – most notably the crash of leading cryptocurrency exchange FTX.

On November 11, FTX – which allowed for the trade of cryptocurrencies – filed for bankruptcy; and it emerged that the exchange had been hacked, leading to more than US$600million in cryptocurrency disappearing from customer’s wallets.

In addition to shocking corporate governance practices – which have seen it draw parallels to the collapse of Enron – it also emerged that FTX had only US$900million in assets to offset liabilities in excess of US$9billion.

The fallout has seen the price of the industry-leading BTC crash to around US$16,000. It was in the region of US$57,000 a year ago.

Analysts on the continent have expressed worry over high levels of exposure for individuals and businesses, as some leading FinTechs are suspected to have some of their assets with FTX.

Data contained in the ‘Global Crypto Adoption Index’, published by Chainalysis, show that sub-Saharan Africa is a hotbed for crypto usage – on account of the clamour for high returns, the desire for lower cross-border transaction fees, as well as activities of criminal elements.

At the height of the pandemic – that is, between June 2020 and June 2021 – Africa’s cryptocurrency market grew by over 1,200 percent.