The rapid rise of technology and the power of the internet has transformed many industries globally. In the financial sector, this transformation has resulted in improved business models, launch of innovative financial solutions and services and this has generated substantial shareholder value and enhanced overall customer experience. As the fintech momentum gathers steam, conversations have now progressed to adopting digital currencies and related software infrastructure such as block chain technology and reducing reliance on fiat currencies. This is poised to further reduce transactional costs, increase transparency in the financial architecture and enhance financial access to those who have found it difficult to get such services. Whilst this is true, the buzz surrounding the circulation of digital currencies has caught the attention of many actors both locally and internationally. While others claim that digital currencies will solve the problems associated with fiat currency, others claim that they pose a significant risk to the existing financial infrastructure. David Chaum, considered the “father of online anonymity” and the “godfather of cryptocurrency”, quoted in 1991 that ‘current developments in applying technology are rendering hollow both the remaining safeguards on privacy and the right to access and correct personal data. If these developments continue, their enormous surveillance potential will leave individuals’ lives vulnerable to an unprecedented concentration of scrutiny and authority’. These views and those of credible experts have since triggered debates on appropriate policies targeting digital currencies and its associated benefits and risks. Therefore to this end, how best can regulations support the establishment and operability of digital currencies?
The uptake of digital currencies as a medium of exchange without full recognition as a legal tender from Governments exposes users to particular dangers and risks. Data privacy infringement and cyber security threats have been identified as top concerns in many quarters. In addition to this, Central Banks have raised their voices in preventing their usability, citing their inability to adequately control the demand and supply of privately generated digital currencies, which would hamper their mandate in stabilizing the macroeconomic environment. This clearly ushers the need for developing regulations that would support the roll out, adoption and safety usage of digital currencies. In order to develop inclusive and progressive regulations, Governments need to cast their nets wide and capture views and opinions of all stakeholders. These stakeholders could include; regulators such as Central Banks and communication and information technology authorities, financial institutions, the general public and global intergovernmental institutions such as the World Bank. Also, interconnecting digital currencies regulations with other existing statuses such as the Anti-money laundering (AML) law, data protection (compliance and enforcement) regulations and capital markets Act will reduce the risk of misinterpretation and seal potential loopholes that could be exploited by those with ill-motives. Whilst the regulation of digital currencies is highly advocated for, stakeholders need to watch out for potential over-regulation which could deter the growth and utilization of digital currencies.
The advent of digital money has been undeniably inevitable, in the grand scheme of things. Correspondingly, digital currencies will witness a global adoption in the fullness of time, as countries such as China, Singapore, Sweden and the United States prepare to roll out government backed digital currencies after years of research and efficient and sufficient stakeholder engagement. As digital currencies continue to reshape our definition of ownership and value, governments need to carefully develop a strategy that will protect users while supporting digital currencies utilization and benefits to the economy.