Terence Zimwara
Regulators in some emerging markets have taken a
particularly hard-line stance against cryptos just as they have done with other
disruptive technologies. The much vaunted mobile money initially faced similar
difficulties as officials were unsure of the best way of reacting to this
fintech.
In small economies like Zimbabwe, banks in particular were
irked by the growth of the Ecocash mobile money platform partly because Econet,
the mobile network operator (MNO) operated outside the regulatory purview. At
some point soon after the coming on board of Ecocash, banks faced pressure from
government over the high bank service charges and fees.
In return, banks argued Econet’s mobile money service had to
be subjected to the same pressure since the company had now entered the
financial services space. Econet is the biggest MNO in Zimbabwe with over 8
million active subscribers in a country with a population of 13 million. Such numbers
potentially made Econet one of the biggest, if not the biggest player in the
financial services industry in the country. The fear was that the MNO would use
this advantage to elbow out competitors.
To show the seriousness of their fears, banks refused to
allow the seamless transfer of funds from banking platforms to the mobile money
platform. Conventional bank customers thus could not move funds from their regular
accounts to the popular Ecocash platform.
At the time it was not clear who had the mandate to regulate
Ecocash, the central bank or the telecoms regulator, Postal and
Telecommunications Regulatory Authority of Zimbabwe (POTRAZ).
Both institutions
seemed eager to regulate the MNO. Eventually the RBZ would have its way, mobile
money is now regulated by the central bank and commercial banks have since
relented as well.
Understanding that MNOs actually complement and do not
threat the financial system caused the changed of stance by banks. And as
Reserve Bank of Zimbabwe found out, it is easy to impose monetary policies on
MNOs because they do not employ decentralized systems like Bitcoin. So instead
of fighting mobile money service providers, regulators now encourage use of
mobile money platforms.
It is also helpful to remember that the internet itself
faced resistance and hostility from players as well as regulators of the industries
that felt threatened. However as usage of the internet grew, it became clear to
all that the World Wide Web actually enhanced efficiency of the very industries
that initially felt threatened. Not only that, the internet brought to life
many other services that were not possible before. In fact, the internet has
become so integral to our everyday lives such that when its shutdown, life
becomes unbearable and chaos will ensue.
Similarly, the extraordinary fear mongering of all things to
do with privately issued cryptos will dissipate once a critical mass of users
is attained. Change has never been something that is easily embraced, often
those agitating for new ways must fight for acceptance. It is now ten years
since Bitcoin was launched and we are entering a critical phase, global
companies are now joining the movement. JP Morgan, Oracle, Facebook and even
central banks have now accepted the concept of crypto-currencies and are working
on their own crypto projects.
Many are predicting that the Facebook coin, Libra will be a
giant step towards in achieving that elusive mass adoption goal.
Of course some central banks are not happy that the world is
moving the direction of cryptos despite their spirited warnings against the
embrace of such fintechs.
For less progressive institutions, there are fears that crypto-currencies
will ‘infringe upon central banks’ exclusive right to issue money’
as the South Africa Reserve Bank (SARB) put it in a consultation paper. SARB
has since proposed measures that may be viewed as circuit breakers in case
crypto-currencies become very popular. In other words, SARB does not want
crypto-currencies to be successful!
Fear appears to be the general motivation for this hostility
and this fear is widespread.
In Kenya, regulators continue to warn citizens about the
dangers of crypto-currencies, which are mostly not regulated. Nigeria and
Uganda, are both contemplating tough regulation for cryptos, which authorities
are repeatedly attempting to link with the growing problem of Ponzi and Pyramid
schemes. Regrettably, some ignorant lawmakers associate cryptos with such scams
hence they support this hostility.
These central banks are trying to kill an innovation before
it has been given a chance to prove itself. In a departure from established
norms, regulators are crafting legislation for an innovation before they fully understand
it.
However, in other jurisdictions, central banks are embracing
crypto-currencies but only on the condition that they alone should be the issuing
entities.
For example, a few years ago, the Bank of England was widely
reported to be involved in the development of what is called the RSCoin, a
crypto currencies which it hopes will eclipse the US dollar as the world’s
reserve currency. According to the researchers working on it, this crypto will
combine the benefits of Blockchain technology as well as those of a centrally
managed currency.
Iran is reportedly working on its own crypto-currency even
as it has discouraged the use of other cryptos like Bitcoin. The Venezuelan
government has already launched its own crypto but the results have been disastrous
so far.
Whichever way we look at it, fear of competition appears to
be the prime motivation for the hostility. Central banks do not want to lose
their monopoly of issuing money. Unfortunately the world has moved on and its
time central banks accept this.
@tem2ra, Facebook whatsapp 263 771799901
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