Botswana central bank sees minimal crypto risks and urges regulation

Botswana’s central bank has stated that the local cryptocurrency market poses "minimal" risks to financial stability, given its underdeveloped state. 

However, the bank emphasises the need for regulatory measures to address potential future risks associated with digital assets.

In its Financial Stability Report, the Bank of Botswana noted that while current risks from cryptocurrencies are low, the increasing interconnectedness of the crypto market with the broader financial system could lead to systemic risks in the future.

Systemic risk refers to a cascading failure that can occur due to links within the financial system, potentially resulting in an economic downturn.

“Domestically, risks emanating from crypto assets are minimal but ongoing misconduct in the segment presents regulatory concerns,” the bank stated. 

The central bank advocates for developing effective oversight frameworks for the sector to prepare for potential challenges ahead.

Although the bank acknowledges that risks from financial technology are currently minimal, it warns that these risks may rise as technological innovations become more prevalent in local markets.

While crypto itself does not threaten financial stability, the Bank of Botswana has identified money laundering and terrorist financing as significant security risks associated with digital payment instruments.

“The evolution of digital platforms and digital payment instruments that promote anonymity of transactions present an opportunity for money laundering in the financial sector,” the central bank noted.

To mitigate these risks, it urges regulators to ensure that virtual asset service providers, such as crypto exchanges, comply with Anti-Money Laundering and Counter-Terrorist Financing regulations.

The bank also stresses the importance of market surveillance and collaboration with law enforcement agencies to detect illegal activities effectively.