Bank of Zambia deputy governor for operations Dr Bwalya Ng’andu has said most central banks around the world are skeptical about cryptocurrencies because they challenge their control over key functions of monetary and exchange rate policies.
Speaking at the Conference of Western Attorney General Africa Alliance Partnership (CWAG AAP) Workshop on Virtual Currency Investigations in Lusaka yesterday, Dr Ng’andu said despite cryptocurrencies having been suspected of financing crime around the world, the trend was being successfully used in South Korea where three in every ten salaried workers had invested in them.
“…some regulators around the globe have sounded warnings against cryptocurrency and have accordingly taken steps to dissuade their use through regulation. Others have likened them to Ponzi schemes. Central banks in particular have difficulties with them because they challenge their control over the key functions of monetary and exchange rate policy. Economist Stiglitz has also been explicitly uncomplimentary of cryptocurrencies which he describes as a bubble that gives a lot of people a lot of exciting times as it rides up and then goes down. It lacks a socially useful purpose and should be outlawed. He considers it a very expensive means of payment used mostly to buy black market goods without a tether to reality,” Dr Ng’andu said.
He then gave an example of South Korea which had embraced the cryptocurrency technology and pointed out the positives.
“It is estimated that three in every ten salaried workers have invested in cryptocurrencies. The country accounts for 30% of total cryptocurrency trading worldwide and possesses a very developed cryptocurrency exchange system. This is happening against the background of government efforts to introduce strong regulation which would restrict entry by illicit players. However, the regulations which were introduced in 2016 are beginning to thaw pointing to more activity in these digital assets as South Korea seems to be poised to play a critical role in driving the adoption of cryptocurrencies around the global,” Dr Ng’andu said of the trade which has received negative sentiments in Zambia.
He implored law enforcement officers and regulators attending the workshop to enhance their practical and theoretical knowledge of virtual currencies.
“And we expect that this knowledge, will in turn, improve our ability to carry out our work more effectively as investigators, prosecutors and regulators…As we reflect on the possibility that at some time in the future virtual currencies could become a widely used medium of exchange, it is important to understand that the current widespread ignorance relating to cryptocurrency as a concept, to how it works and to the role of block chain technology, which underlies it, is a big issue,” Dr Ng’andu said. “Ignorance surrounding cryptocurrency unfortunately is not the special preserve of the general public because it finds its place even among those of us who are charged with the responsibility of regulating the financial landscape or fighting crime which may have its origins in the use or misuse of virtual currencies. In one sense this workshop should make it possible for us to deal effectively with this challenge of ignorance because it is providing an opportunity for fraudsters to lure people into investing in what are essentially Ponzi or pyramid schemes on the pretext that their money will be invested in digital or cryptocurrency backed assets which will generate high returns in a very short period of time.”
He said the Bank of Zambia had observed a rapid rise in scams that were being perpetrated by fraudsters in the name of cryptocurrencies.
“In a number of such frauds that the Bank of Zambia has dealt with in partnership with the Zambia Police, the Drug and Enforcement Commission and the Financial Intelligent Center, investors were promised returns on their investment, in some cases calculated on the basis of 1.5% per day or a promise to triple their investment within one month. The unfortunate thing is that these schemes have been rapidly subscribed to; the catch being that their money will be invested in cryptocurrencies,” said Dr Ng’andu. “For regulators and law enforcement officers, the development that the cryptocurrency technology can facilitate organised crime is disconcerting because more often than not criminals are quicker on the uptake and tend to understand the way that they can use innovative products and services to defraud unsuspecting users. Sometimes they do this long before the capacity and capability to regulate or police is built. The fact that this happens should not necessarily be an indictment on the likes of us who are in this room. It is just that technology is now introducing new products and services in the market at such a furious pace that regulations and laws, sometimes lag behind and we have to play catch a up game with the law breaker. The broad purpose of this workshop goes beyond dealing with concerns that might arise from shortcomings and risks associated with the failure to prevent crime and abuse of cryptocurrency technology. Some of these risks include as I have said before fraud and the lack of consumer protection against fraud but it can also include money laundering and financing of terrorism activities.”