By Phiwa Sikhondze
A study commissioned by the Central Bank of Eswatini (CBE) and conducted by the Eswatini Economic Policy Analysis and Research Centre (ESEPARC) has suggested that Eswatini needs a balanced and proportionate approach to cryptocurrency regulation which is based on principles of risk-based supervision, consumer protection, financial stability, and international cooperation.
The study, titled Eswatini Baseline Cryptocurrency Survey, surveyed 4,561 individuals and 34 financial service providers (FSPs) across the country in December 2023. It aimed to assess consumer knowledge, behaviour, and experiences regarding cryptocurrency, as well as the challenges and opportunities for cryptocurrency adoption in Eswatini.
According to the study, both individuals and FSPs perceive cryptocurrency as risky, volatile, and complex, but also as innovative, convenient, and profitable. The main barriers to cryptocurrency adoption in Eswatini are lack of knowledge, trust, and regulation, as well as high transaction costs, limited access to the internet and devices, and low acceptance by merchants and FSPs.
The study revealed that cryptocurrency activities in Eswatini pose significant regulatory risks and implications for the CBE and the government, such as:
Anti-money laundering and combating the financing of terrorism (AML/CFT): It found that cryptocurrency activities may facilitate illicit financial flows, such as money laundering, tax evasion, fraud, and terrorism financing, due to the anonymity, decentralization, and cross-border nature of cryptocurrency transactions. The recommendation on this aspect was that the CBE and other stakeholders should implement the Financial Action Task Force (FATF) standards and guidance on cryptocurrency, and enhance the coordination and cooperation among relevant authorities and jurisdictions.
Consumer protection: The study revealed that cryptocurrency activities may expose consumers to various risks, such as cyber-attacks, theft, loss, fraud, and scams, due to the lack of security, transparency, and accountability of cryptocurrency service providers and platforms. It suggested that the CBE and other stakeholders should establish and enforce minimum standards and requirements for cryptocurrency service providers and platforms, and ensure the disclosure and education of consumers about the benefits and risks of cryptocurrency.
Financial stability: The survey noted that cryptocurrency activities may affect the stability and integrity of the financial system, such as the monetary policy, the payment system, and the financial intermediation, due to the volatility, speculation, and competition of cryptocurrency. It advised that the CBE and other stakeholders should monitor and assess the impact and implications of cryptocurrency activities on the financial system, and adopt appropriate measures and safeguards to mitigate the potential threats and shocks.
International cooperation: The study found that cryptocurrency activities may require international cooperation and coordination, due to the global and cross-border nature of cryptocurrency transactions and markets. It proposed that the CBE and other stakeholders should engage and collaborate with regional and international bodies and initiatives, such as the Southern African Development Community (SADC), the Common Monetary Area (CMA), the Bank for International Settlements (BIS), and the G20, to harmonize and align the regulatory frameworks and practices for cryptocurrency.
In conclusion, the survey highlighted that cryptocurrency has the potential to contribute to the financial inclusion and economic development of Eswatini, but also poses significant risks and challenges that require appropriate policy and regulatory responses.