What you need to know:
- Argument. The Central Bank governor says crypto currencies are not legal tender but the President urges him to embrace new technologies.
President Museveni and Bank of Uganda Governor Emmanuel Tumusiime-Mutebile yesterday disagreed on whether Uganda should adopt use of crypto currency in running financial transactions.
Crypto currency is a digital or virtual currency which uses cryptography for security.
While giving a keynote address during the Africa Blockchain Conference at Kampala Serena Hotel yesterday, Mr Mr Mutebile said the emergence of crypto currencies such as bit-coin has made central banks to revisit two fundamental questions: what functions of a currency are and what the requirements for a credible currency are.
Mr Mutebile warned that no crypto currency can match a well-managed national or regional currency.
“Crypto currencies do not have the privileges of a legal tender and are not backed by a central bank which ensures that supply of currency is always adequate to meet the demand,” he said.
“Furthermore, there are no external mechanisms for backing crypto currencies to ensure they have stable value. Consequently, crypto currencies are subjected to extreme price volatility which renders them ineffective as a store of value or unit of account,” he added.
Mr Mutebile cited examples on the international scenarios and said the governor of the Bank of England, Mr Mark Carney, recently noted that ‘the average volatility of the top 10 crypto currencies by market capitalisation was 25 times that of the US equities market in 2017.’
“It is, therefore, not surprising that crypto currencies currently command negligible share of ecommerce payment worldwide,” Mr Mutebile said.
He said crypto currencies allow anonymous payments, especially in cross-border transactions, thus facilitating illicit payments such as money laundering or financing crime.
He said crypto currencies also offer avenues for speculation.
Mr Mutebile said the current value of crypto currencies depends entirely on the subjective beliefs of those trading in it about what their future will be.
“In the long term, unless crypto currencies can command widespread acceptance as a medium of exchange, demand for them will be negligible and their value will therefore fall to zero. The stratospheric prices at which some of the crypto currencies have recently traded are unlikely to be sustainable. People who have invested their savings in crypto currencies risk getting burned badly when the bubble bursts,” he said.
However, the BoU governor advised that given the blockchain technology and the opportunity it offers, conference delegates should note that crypto currencies and blockchain technology that supports it are distinct things.
However, President Museveni told Mr Mutebile to embrace emerging technologies in the financial and banking sector.
Although he said Mr Mutebile was not opposed to blockchain technology but wanted the experts at the conference to explore its potential benefits to the public, he told the governor not to be dismissive of the new technology.
“I would encourage the governor not to be more inquisitive and not to be dogmatic. I congratulate him for reminding me of my economics of 1966 that money is a store of value, a medium of exchange and a unit of account,” Mr Museveni said.
“When we get into new technology, sometimes we tend to get lost and we lose touch with technology that comes. Business is about the supply of goods and services to meet the demands of the people. They determine the sources of goods and services to be traded,” he said.
Mr Museveni said the basis of the new technology is to enable things move faster.
The minister of ICT, Mr Frank Tumwebaze said government is in the process of appointing an advisory taskforce on the use of blockchain technologies to find ways of adopting it in government institutions.
He asked the delegates to return to Uganda after the conference to set up shops and assembling centres for blokchain technologies to serve as innovation and harbour centres.