Uganda’s central bank takes a 180-degree turn on cryptocurrencies and welcomes cryptocurrency companies into the regulatory sandbox

The Bank of Uganda is open to the idea of cryptocurrency businesses participating in its regulatory sandbox, inviting members of the Blockchain Association of Uganda (BAU) to share their knowledge with it.

A June 1 letter from the Bank of Uganda to BAU chairman Kwame Rungunda referred to a meeting between the two parties in early May. The central bank also advised cryptocurrency advocacy groups in the country to review sandbox regulations before engaging in further technical discussions.

In June 2021, the Bank of Uganda launched a regulatory sandbox framework to allow financial technology (FinTech) companies to test "innovative financial solutions" in a controlled environment, hoping to promote the adoption of domestic electronic payments and other digital financial services.

The latest letter appears to be a Ugandan Bank of Uganda U-turn on cryptocurrencies.

In late April, the Bank of Uganda issued a warning on cryptocurrencies, issuing a notice to all payment service providers in Uganda, saying that allowing crypto transactions opens Uganda to money laundering and fraud.

It added that any provider, such as a bank or fintech business, that facilitates cryptocurrency transactions will have its financial license revoked.

Cryptocurrencies are not banned in Uganda, and citizens of the country can still buy, hold and trade cryptocurrencies. However, cryptocurrencies are not regulated and no company has yet obtained a digital asset license to operate in the country.

The adoption of cryptocurrencies in Africa is heating up, attracting the attention of many VC funds and crypto companies. Cryptocurrency usage in Africa has increased by almost 1,200% between 2020 and 2021, with almost 2% of people in Uganda using cryptocurrencies.

Across the continent, other countries have been friendly to cryptocurrencies, with the Central African Republic becoming the first African country to adopt Bitcoin (BTC) as legal tender, and only the second ever to do so.

Kenyan state-owned energy company KenGen has also invited bitcoin miners to move to Kenya to buy excess electricity generated by geothermal energy, thereby generating income through cryptocurrency mining fees or taxes.