Introduction:
One may classify currencies into several monetary forms such as (a) commodity money used in ancient times as the medium of exchange (b) fiat money which is hard cash and (c) representative money which is backed by different assets or financial instruments, including but not limited to, credit cards and cheques.
Unlike fiat money, which is issued by many central banks across the globe, cryptocurrency is an alternative mode of payment to fiat money. This type of currency can be described as a digital currency where transactions are verified and the records are maintained by a decentralized system using cryptography rather than by a centralized authority.
How Cryptocurrency and Blockchain technology works:
Cryptocurrency uses blockchain technology which is a database that keeps records of cryptocurrency totals and transactions. Blockchain technology stores data in blocks linked or chained together in a chronological order in a distributed ledger that can be viewed by cryptocurrency users. That said, cryptography is a way of making blockchain secure by cryptographic codes, allowing users to access but nearly impossible for an unauthorized user to have access to the database.
Because of the decentralized nature of cryptocurrency’s blockchain, all transactions can be transparently viewed by either having a personal node or using blockchain explorers that allow anyone to see transactions occurring live. Each node has its own copy of the chain that gets updated as fresh blocks are confirmed and added. This means that, if one wanted to, one could track the cryptocurrency wherever it is transferred. Cryptocurrency is also encrypted and uses public and private keys to maintain virtual security which allows a person to safely send currency from one platform to another without going through a bank or financial services provider. A digital wallet known as a cryptocurrency wallet, is a software that allows the transfer of currency from one account to another which works a lot like a credit card.
As it currently stands, in most jurisdictions, there is very little regulation or centralized oversight on cryptocurrencies, which in turn reduces the usual ‘red tape’ associated with transactions which are regulated by central banks. This then leads to making it easier for persons to make cross boarder payments as one does not need to go through a regulated system of transferring funds from one jurisdiction to another. The exchange of cryptocurrency can be made for fiat currency or national currency such as United States Dollars and can also be traded for digital currencies or through investment, one may invest in cryptocurrency by purchasing a given amount at one value and selling it when the value increases.
Risks associated with cryptocurrency include the fact that the technology is fairly new and, therefore, all the transactions recorded on a public ledger highlights the transaction total without revealing the identities of parties involved. This may facilitate illegal activities such as money laundering.
Lack of affordable and unreliable internet access particularly beyond urban areas, especially in Tanzania, hinders the use of this technology in developing countries, this is because the technology currently requires reliable internet access to be able to trade through various platforms. About 70% of people living in developing countries such as Tanzania are without reliable internet access.
In September 2021, El Salvador introduced a virtual currency as a legal tender, alongside the US Dollar. At the time, the Government of El Salvador released a new digital wallet application, giving away USD 30 in Bitcoin (a type of crypto currency) to every citizen. More than 200 new cash machines were also installed across that country. It presented a measure as a way to boost economic development and creation of jobs. This meant that businesses, wherever possible, were obliged to accept the digital currency as payment.However, El Salvador has been divided by the move, thousands protested in the streets against the new law allowing the use of cryptocurrency as a legal tender. The demonstrators feared it will bring instability and inflation to El Salvador’s economy, From November, 2021, Bitcoin (the cryptocurrency of choice in El Salvador’s Government) lost half of its value forcing the International Monetary Fund (IMF) to warn President Nayib Bukele, of El Salvador of being at risk of not getting any financial aid from the institution.
The Tanzanian Legal Regime on cryptocurrency:
The Bank of Tanzania (the “BOT”), as stipulated in section 26 and 27 of the Bank of Tanzania Act (as amended) of the laws of the United Republic of Tanzania (the “BOT Act”), is the sole institution in the United Republic of Tanzania mandated to issue banknotes, coins and to declare a legal tender in the country.
The National Payments System Act Number 4 of 2015 of the laws of the United Republic of Tanzania (the “NPS Act”) prohibits digital payments without a license from the BOT. Section 15 and 24 of the NPS Act provide that a person shall not operate an electronic payment system without a license or approval, further enforcing the authority of the BOT in regulating the country’s legal tender and currency.
Further, section 56 (3) of the BOT Act gives power to the Governor to restrict the issuance of electronic money operators and safeguard the stability of the financial system, as such, the Tanzania Shilling remains as the only legal tender in Tanzania.
In light of the foregoing, it is essential to note that currently, the legal regime in Tanzania does not recognize nor authorize the use of cryptocurrencies in Tanzania.
This position was further cemented by a Public Notice on cryptocurrency issued by the BOT in November 2019. This notice banned the use of cryptocurrencies in Tanzania and the BOT cautioned the general public against trading, marketing and usage of virtual currency because doing so is contrary to the existing foreign exchange regulations and further stated that the only acceptable and used legal tender in Tanzania is the Tanzania Shilling.
Recently, there has been a change in attitude towards cryptocurrency in Tanzania with the Government recognizing the rapid increase in crypto-trading globally. In June 2021, President Samia Suluhu Hassan added her own voice to the push stating in her speech that the arrival of digital currencies in East Africa nations was inevitable, her comments were made shortly after El Salvador became the first country in the world to adopt bitcoin as a legal tender, prompting a fresh debate over the role of cryptocurrencies in economies and remittance transfers. Further, President Hassan urged the BOT to be prepared for a potential shift in the global economy on cryptocurrencies and advised the institution to start working on the legal regime regulating cryptocurrencies in Tanzania.
The BOT Governor’s statement, delivered on November 26th, 2021 in Dodoma at a meeting of Tanzanian financial sector stakeholders, was the BOT's first formal message on cryptocurrency trading since issuing a cautionary note two years ago. It came after tentative plans to develop an official Central Bank Digital Currency (CBDC) system which may include cryptocurrencies were confirmed.
Despite the prohibition of the usage of cryptocurrency under the Tanzanian legal regime, many people are still trading and participating in these transactions and it is for this reason, Tanzania is ranked in the top 20 global crypto adoption index.
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Conclusion:
Some of Africa’s largest economies such as Nigeria are leading the way in having cryptocurrencies as legal tenders and issuing regulatory guidelines for their use. Based on the recent shift in approach and policy in Tanzania in respect of cryptocurrencies, we are of the view that the BOT will soon introduce the necessary guidelines followed by legislation on the usage, applicability and regulation of cryptocurrencies in Tanzania.
[1] https://www.ibm.com/ What is Blockchain Technology? - IBM Blockchain | IBM
[2] https://cryptocurrencyfacts.com/ how-does-cryptocurrency-work-for-beginners
[3] https://www.bbc.com/news/world-latin-america-59368483
[4] https://www.bbc.com/news/world-latin-america-58579415
[5] https://blog.chainalysis.com/reports/2021-global-crypto-adoption-index
Note. This is not a legal opinion and the contents
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