THE Central Bank of Lesotho (CBL) has warned the nation against embracing cryptocurrencies such as the universally popular bitcoin, saying they were not legal tender in this Kingdom and those who did so risked violating tax, exchange control and anti-money laundering laws.
The CBL also warned that there were no remedies for the public in the event of any losses suffered.
A cryptocurrency is a digital asset or currency designed to work as a medium of exchange that uses cryptography to secure its transactions, in order to control the creation of additional units, and to verify the transfer of assets.
Cryptocurrencies are used primarily outside existing formal banking and governmental institutions and are exchanged over the internet. While these alternative, decentralised modes of exchange are in the early stages of development, they have the unique potential to challenge existing systems of currencies and payments.
Created in 2009, Bitcoin was the first cryptocurrency and since then, numerous other cryptocurrencies have been created. These are frequently called altcoins, meaning they are alternative coins. As of January 2018, there were over 1 384 and growing digital currencies in existence.
Closer to home, it is estimated that between 200 000 and 300 000 people in South Africa are now involved in cryptocurrencies and the phenomenon has even attracted the interest of some Basotho who have begun trading in these currencies on the internet.
Globally, as of December 2017, the total market capitalisation of cryptocurrencies was more than US$600 billion and recording a high daily volume larger than US$ 500 billion.
However, the CBL still wants the public to be cautious of cryptocurrencies lest they fall victim to scams similar to the Ponzi schemes.
Despite repeated CBL warnings on the dangers of Ponzi or pyramid schemes, many Basotho have invested in the schemes and ended up losing millions of maloti when a pyramid scheme known as the MMM Republic of Bitcoin, collapsed in April 2016.
Basotho also lost millions when MKM, which masqueraded as a legitimate investment vehicle when it was in fact a Ponzi scheme, collapsed spectacularly.
In a statement this week, the CBL this week indicated that while they acknowledged innovation and the adoption of new technologies in the financial sector, the public needed to exercise caution over the growing promotion of cryptocurrencies.
“The Central Bank of Lesotho is the legislated sole issuer and redeemer of currency in Lesotho and cryptocurrencies do not fall under the purview of our regulatory scope. As such, there shall be no recourse to the bank in the event of losses. As such the members of the public are warned to be cautious,” part of the statement reads.
The CBL said it would only approve of cryptocurrencies if they were deployed in a manner that sufficiently safeguarded the interests of the users.
“Due to the nature of cryptocurrency transactions that do not require any disclosures, the public is warned that promoting and or participating in virtual currencies may lead to violations of existing tax laws, exchange control laws and anti-money laundering, combating of terrorist financing laws, which are prosecutable transgressions.”
The statement further said that cryptocurrencies were not legal tender or acceptable formal currencies issued by other countries and traded by licensed institutions in Lesotho.
“Members of the public are hereby warned that, by virtue of being offered as (financial) investment opportunities to the public, cryptocurrencies directly expose their promoters to violation of Sections 27 and 28 of the Central Bank of Lesotho Capital Market Regulations of 2014 that require investment advisers to be licensed by the Central Bank of Lesotho.”
The Director in the CBL Research Department, Lehlomela Mohapi, also told the Lesotho times that the “CBL issued a cautionary statement effectively saying crypto currencies are not regulated by the CBL and if you participate in them, you do so at your own risk as there can be no recourse to the bank in the event of losses or similar eventualities.”
“Many central banks around the world have issued similar cautionary statements,” he added.
The GBL, a Chinese bitcoin trading platform, suddenly shut down on 26 October 2013. Subscribers who were unable to log in, lost up to US$5 million worth of bitcoin.
In February 2014, the world’s largest bitcoin exchange, Mt Gox based in Tokyo, Japan, declared bankruptcy. The company stated that it had lost nearly US$473 million of their customer’s bitcoins to theft.