Premium
Experts claim central bank digital currency can curb financial crime
Experts say a digital version of the shilling could help Kenya exit a global watch list of financial crimes.
A digital version of the shilling could help Kenya exit a global watch list of financial crimes, a group of experts has claimed.
The experts have urged the State to embrace Central Bank Digital Currencies (CBDCs) to aid efforts to get Kenya out of the Financial Action Taskforce’s (FATF) grey list – which it entered last year after failing to seal loopholes in money laundering.
A CBDC is a digital version of a country’s currency that is issued and regulated by the monetary authority, which is the Central Bank of Kenya. It has all the features of other digital currencies like Bitcoin, except it is regulated by the government.
The Financial Reporting Centre (FRC) and a financial forensic consultancy firm, Flywheel Advisory urged Kenya to embrace the technology to combat money laundering and terrorism financing through the use of unregulated digital currencies.
“There are some technological solutions like leveraging blockchain analytics and transaction monitoring tools, exploring the potential of central bank digital currencies (CBDCs) as a regulated alternative,” they said in a joint report noted the experts in the report.
This comes two years after the Central Bank of Kenya (CBK) decided to go slow on the rollout of a CBDC following cautions from local lenders, who felt a digital currency could cause a bank run.
The risk notwithstanding, the experts believe the country has a better shot at exiting the grey list if the government creates an alternative digital currency for Kenyans to use in addition to introducing regulations on existing virtual assets.
Kenya was added to the FATF grey list in February 2024 due to concerns about the effectiveness of its policies for combating money laundering and financing terrorism in the country.
The grey listing means that the country faces increased scrutiny from the global watchdog, and the country could face sanctions from other international bodies and governments if it doesn’t make progress. It also increases the cost of compliance and accessing the international markets for Kenyan businesses.
The widespread use of cryptocurrencies, which are unregulated in Kenya, has contributed to the loose anti-money laundering regulations in the country.
“We should fast-track regulations on virtual assets such as cryptocurrencies and virtual asset service providers because of a lack of guidelines creates loopholes for money laundering and terrorism financing. Additionally, the lack of regulations makes recovery of virtual assets challenging,” said Grace Mburu, founder and executive director of Flywheel Advisory.