BY MOSES MAGADZA/CLARE MUSONDA
THE SADC Model Law on Public Financial Management (PFM), which the SADC Parliamentary Forum is in the process of drafting, has garnered more praise, with some people praising it for addressing, albeit in by the way, cryptocurrencies while others called for more guidance on the phenomenon.
A cryptocurrency is a digital currency that functions as a medium of exchange through a computer network. Last year, money laundering via cryptocurrencies increased by 30% and displaced approximately US$8.6 billion. Cryptocurrencies are a rapidly developing phenomenon that is aggressively marketed, especially on social media platforms. Some people, including retirees, have been lured into it by promises of elusive quick returns, only to lose out.
With the crypto industry largely unregulated, some observers are calling on the evolving SADC Model Law on PFM to inform regulation, as some SADC member states scramble to tame the cryptocurrency jungle.
One observer, speaking on condition of anonymity, said: “There is a growing attraction to jumping into the cryptocurrency forest and everyone has taken their bow and arrows to feed themselves in this forest. There’s very little protection via information about how things work There’s a lot of opaque stuff that needs to be unpacked and spelled out.
For some people, cryptocurrency is a generational phenomenon. Citizens who are not technologically savvy or comfortable with the use of information and communication technologies (ICT) would find it difficult to navigate or trade online.
The technological revolution unfolding globally is ushering in changes in the way things are done, putting some people at risk of being left behind. The big question is: is cryptocurrency worth considering now, even in the development of regional legislation?
Pepukai Chivore, Director of the Budget Office in the Parliament of Zimbabwe, said: “It is interesting to note that Africa has fertile ground for the growth of cryptocurrencies. It ranges from an underdeveloped infrastructure that makes it a powerful vector for cryptocurrencies and the growth of mobile money applications. Money laundering through cryptocurrencies has increased and as such some countries like Kenya have banned it.
“Although some may not support its use due to lack of oversight and illicit links, some countries have introduced regulations under Anti-Money Laundering and Counter Terrorist Financing (AML/CFT) laws ) to reduce its use for these purposes,” he said.
In November 2021, the Library of Congress (LOC) identified 103 countries whose governments had instructed their financial regulatory agencies to develop regulations and priorities for financial institutions regarding cryptocurrencies and their use in AML/ FT. Only 42 countries had implied bans on certain uses of cryptocurrency as of November 2021.
Says Chivore: “So it is my considered opinion that whether we like it or not, we seem to be moving in the direction of cryptocurrency and it pays to be prepared. The Model Law on PFM will simply prepare Member States and serve as a reference and guidance legal instrument for national parliaments to strengthen their national legal frameworks on PFM. Sovereign countries are free to disregard the cryptocurrency provisions if they believe they are unnecessary.
He noted that cryptocurrency adoption in Africa increased by 1,200% between July 2020 and June 2021, making it the fastest adoption rate in the world. Markets like Kenya, Nigeria, South Africa, and Tanzania have seen some of the highest local adoptions in the world and ranked in the top 20 Global Crypto Adoption Index.
“Sadc cannot discount these reports, but must be prepared, at least with advice on cryptocurrency regulation in case some countries adopt them,” Chivore, a member of a technical working group (TWG) helping veteran legal writer Daniel Greenberg, CC, crafts regional soft law.
Zimbabwean citizen Nashmento Katawara has closely followed the development of the SADC Model Law on PFM. He noted that cryptocurrencies have been adopted in many parts of the world and some people have made money from them through blockchain technology.
“I am so excited and impressed to hear that Sadc PF has included this in its evolving PFM Model Law,” Katawara said.
He said, however, that instead of just scratching the surface, the model law needed to have a rich section on cryptocurrency because that’s where the world was going.
“In fact, we are already in that age. However, there is an information asymmetry, with far too many people still unaware of what cryptocurrencies are and how they are traded online,” he observed. He hailed the Sadc PF for “pre-empting” the advent of cryptocurrencies and for championing regulation in this area.
“We definitely need regulation in this area as it involves the movement of a lot of money. Any financial system needs regulation. This preventative approach by Sadc PF is commendable,” added Katawara.
He called for cryptocurrency education much earlier in life.
“Let’s teach kids about cryptocurrencies early, just like we do with comprehensive sexuality education (CSE). Some of us didn’t learn about cryptocurrencies in school and yet they are now on us.
Simon Mtambo, Deputy Principal Clerk in the Parliamentary Budget Office of the National Assembly of Zambia and member of the Sadc Model Law on PFM TWG, admits that cryptos are very volatile as they tend to be a speculative currency. It is therefore difficult for central banks to regulate and license market participants in the sector due to the complex nature of due diligence and the certainty of value which can be misleading. Additionally, Mtambo said the developed world is struggling with fraud and money laundering that fuel extortion, piracy and financing subversive acts like terrorism.
“However, whether we like it or not and despite the mostly negative publicity of traditional monetary systems, cryptos are here to stay. It’s time to start accepting that money doesn’t have to be paper-based only. The Model Law tries to be flexible in recognizing other forms of currency, including cryptos,” he noted.
Mtambo said the adoption of cryptocurrencies would not happen overnight as some members would be cautious while others might not accept them.
“As more and more engage in crypto, countries will have no choice but to adjust their national laws as they will have to transact anyway. The beauty is that the SADC Model Law on PFM is already forward-looking in this regard,” he explained.
John Ernest Odada, professor of economics and dean of the faculty of management sciences at Rongo University in Kenya, said the adoption of cryptocurrencies will depend on how they instill confidence in traders.
“When something exists in a good way that business partners are happy with; it can be used. Some of these currencies have led people to lose their money in online investments. Therefore, some countries are not happy with these currencies,” said Odada, who has spent nearly 20 years teaching at universities in the Sadc region.
While praising Sadc PF for sparking a debate on cryptocurrencies, Odada believed that they can only become a medium of exchange when they gain the trust of trading partners.
“Without this trust, they cannot be means of international exchange. We may have to wait and see which direction these currencies develop,” Odada said.
Many stakeholders are critically reviewing the Sadc Model PFM Bill in a series of meetings that the Sadc PF has convened. Some have generally welcomed it, saying that it is good to come up with better budget management or better PFM, especially in the face of crises the world is going through, such as the Covid-19 pandemic and natural disasters.
There is consensus that the crises plaguing the SADC region and beyond require countries to manage their resources well and have good PFM models that can lead to better fiscal discipline to be strong when they are hit by different disasters or trade with the rest of the world in the context of the African Continental Free Trade Area.
Cryptocurrencies featured prominently in an advisory meeting convened by Sadc PF for law enforcement officials involved in the investigation of financial crimes and related offenses last week. Fadhili Mdemu of the Tanzanian Police said there is a fine line between cryptocurrency and pyramid schemes which have ruined many people’s lives. He called for a lot of investment in public education before cryptos could be accepted.
A delegate from Botswana agreed and said the capacity of law enforcement officers dealing with cryptocurrency-related crimes and offenses should also be strengthened. Greenberg said the SADC Model Law on PFM represented a fusion of approaches from various jurisdictions, including SADC Member States, but implementation would take into account local contexts.
For his part, the Secretary General of Sadc PF, Boemo Sekgoma, pointed out that the Sadc Model Law on PFM aims to build the capacity of the national parliament of the region in prudent PFM, in line with the vision of the forum of be the standard bearer for democratization and sustainable development in close consultation. with SADC policy organs.
- Moses Magadza is a communications and media specialist pursuing a PhD in media studies at the University of Namibia.
- Clare Musonda, a lawyer and social scientist, is director of corporate governance at Sadc PF.