Botswana central bank flags ‘minimal’ crypto risks but urges regulation

Botswana’s central bank said the country’s local crypto markets remain undeveloped, resulting in “minimal” risks to financial stability. However, the bank said that regulations should be put into place to prevent potential digital asset risks in the future. 

In its Financial Stability Report, the central bank said that the increasing interconnectedness of the crypto market with the rest of the financial system presents potential systemic risks. 

In a financial context, a systemic risk refers to a cascading failure caused by links within the financial system. The resulting domino effect could result in an economic downturn. 

Crypto poses minimal risks to Botswana’s financial stability

Despite this, the bank said that risks coming from crypto are minimal for its domestic markets. However, the central bank said regulators should develop oversight frameworks for the sector to prepare for future risks. The Bank of Botswana wrote: 

“Domestically, risks emanating from crypto assets are minimal but ongoing misconduct in the segment presents regulatory concerns. Regulators therefore need to develop effective oversight frameworks for the sector.” 

The bank also wrote that local virtual assets markets are still developing. Because it’s “relatively unsophisticated,” the bank said it poses limited financial stability risks. 

The central bank also added that risks coming from financial technology in general are also minimal. However, they may rise as tech innovations penetrate the local markets. 

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Botswana lists money laundering as a top security risk

While crypto does not threaten financial stability, the Bank of Botswana listed the use of digital payment instruments for money laundering and terrorist financing as one of the five top national security risks that emanate from the financial sector. The central bank wrote: 

“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 bank said that the complexity of financial technology developments allows illicit funds to be transmitted globally with low detection risks. 

In order to mitigate these risks, the central bank urged regulators to ensure that virtual asset service providers like crypto exchanges comply with Anti-Money Laundering, Counter Financing of Terrorism and Counter regulations. 

The bank also said market surveillance and frequent collaboration with law enforcement may help detect illegal operations. 

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