The Central Bank of Kenya has issued a statement cautioning Kenyans against using virtual currencies. CBK maintains Bitcoin and other virtual currencies are not legal tender because they are not issued or guaranteed by any government.
“No protection exists in the event that the platform that exchanges or holds the virtual currency fails or goes out of business,” CBK states.
Regulators around the world are grappling on how to react to the rising demand for ‘virtual currencies’ or cryptocurrency. Consumers have been quick to adapt the peer-to-peer payment system that allows buyers to buy goods across borders without exchange rate fees.
Countries like the US, Australia, Canada and UK have allowed Bitcoin to operate not as a legal tender but as Money Service Business, more or less the same regulatory framework under which M-Pesa operates.
Kenya follows in the step of countries like Vietnam, China, Bangladesh, Iceland and India in banning Bitcoin.
Authorities, including CBK, have raised concerns over the virtual currency susceptibility to money laundering and terrorism funding since users can make anonymous transactions.
The CBK warning comes a day after a judge ruled in favor of Safaricom versus two companies facilitating transaction via bitcoin. Lipisha Consortium and Bitpesa had moved to court to challenge Safaricom’s decision to suspend the agreement that allowed Bitpesa to be used as a payment method.
Lipisha Consortium provides payment automation through mobile operators to its clients including Bitpesa.
Safaricom, in its defense, said Bitpesa needs to get clearance from CBK for it to continue running on its network.
“There is no underlying or backing of assets and the value of virtual currencies is speculative in nature. This may result in high vitality in value of virtual currencies thus exposing users to potential losses,” CBK said in a public notice.