The rise and risks of the cryptocurrency market in Ghana

Globally, the cryptocurrency market has grown rapidly over the past few years as crypto adoption rises. Africa, with a predominantly young population, is considered the continent that has the fastest adoption rate.

Cryptocurrency has proven that people have the ability to be their 'own bank' and manage their own wealth, thus eliminating third parties. With high financial instability in various African countries, the introduction of the cryptocurrency market is gradually onboarding young people who are eager to build wealth.

As more and more people are jumping on the crypto wagon, its legal status globally has seen significant shifts, from countries legalising Bitcoin and other cryptocurrencies, to others banning them. Some countries have also started to explore the use of central bank digital currencies (CBDCs) as a way to promote financial inclusion and support a cash-lite economy, while some have piloted their own CBDC.

Following the legalisation of Bitcoin by El Salvador in 2021, other countries have followed suit. One of those is the Central African Republic, which became the first country in Africa to take the lead in legalising cryptocurrency. Nigeria is the first country in Africa to have introduced and implemented its own CBDC, the eNaira. Since then, many countries have examined their economies and put in place measures and policies that support their economies, and Ghana is no exception.

There is no cryptocurrency legislation or regulation in Ghana. However, Ghana’s central bank – the Bank of Ghana (BoG) – has issued several notices to the general public stating that cryptocurrencies are not recognised as legal tender and that people who trade in these currencies do so at their own risk. In the most recent notice (NOTICE NO BG/GOV/SEC/2022/03), the BoG reiterated that cryptocurrencies such as Bitcoin are not regulated under any laws in Ghana, and are therefore not backed by any guarantees or safeguards.

The Securities and Exchange Commission (SEC) has also warned against the use of cryptocurrencies in Ghana, in a notice (SEC/PN/003/03/2019) in March 2019. In that communiqué, the SEC was emphatic as regards the non-recognition of cryptocurrency as currency or legal tender in Ghana, and asserted that it does not regulate these types of product offerings and their accompanying online trading platforms or exchanges.

In terms of existing regulation of financial technology (‘FinTech’), however, the Payment Systems and Services Act, 2019 (Act 987) was introduced in 2019 to amend and consolidate the laws relating to payment systems and payment services, and to regulate institutions that carry on payment service and electronic money business. This legislation has since been the framework governing FinTech companies and their activities in Ghana.

In a related development, the BoG established a FinTech and Innovation Office to drive the bank’s cash-lite, e-payments, and digitalisation agenda. The office also develops policies to promote innovation in the banking sector and FinTech interoperability. The office has launched a regulatory and innovation sandbox pilot under which one of the categories it would give preference to is products and services leveraging blockchain technology. This is in line with its commitment to evolve an enabling and inclusive regulatory environment that promotes FinTechs and supports innovation.

In a move that many consider as proffering an alternative to cryptocurrencies, the BoG announced the introduction of its CBDC – the eCedi – which is now in its pilot stage.

Ghana is one of the African countries that heavily relies on mobile money transactions in facilitating and promoting financial inclusion within the country. According to the Payment Systems Oversight Annual Report, as at December 2021, there were 48,308,945 mobile money accounts.

Since the advent of COVID-19, the Ghanaian economy, just like many others, has struggled to keep afloat and has introduced various revenue generation policies to support the economy. In May 2022, the government of Ghana introduced an electronic levy (‘e-levy’), to be applied to targeted electronic transactions.

Also, the rate of inflation in the country has been skyrocketing. As at July 2022, the rate was quoted as 31.7%, greatly affecting the cost of living in the country. Meanwhile, the Ghana cedi is experiencing constant depreciation and has fallen by 35.7% against the United States dollar over the past 12 months.

The economic terrain in Ghana, therefore – specifically the pressure on the Ghana cedi – is creating a lot of financial pressure on the average Ghanaian, which is likely to result in mass cryptocurrency adoption to mitigate the risk of further loss in value, in spite of the warnings issued by the BoG and the SEC.

Google trends shows that Ghana is among the top 20 countries to run google searches about cryptocurrency. According to the State of Crypto: Africa report, this makes it clear that consumers have an organic and growing interest in cryptocurrency and its applications. It is also estimated that in terms of cryptocurrency ownership in Ghana, over 900,000 people (3.01% of Ghana’s total population) own at least one type of cryptocurrency.

The rate of stablecoin usage in Ghana is unclear. However, the State of Crypto: Africa report indicates that disinflationary crypto assets that enjoy digital scarcity are one option for citizens to escape the economic crisis in Africa. That report shows that stablecoins pegged to fiat currencies such as the US dollar have historically outperformed African currencies and shows that African users are much more interested in a US dollar-backed stablecoin compared with other cryptocurrencies.

Due to the rapid depreciation of the Ghana cedi and the costliness of maintaining foreign accounts in Ghana, it is estimated that cryptocurrency adoption will continue to rise rapidly. Unlike countries such as the United States and the United Kingdom, countries such as Ghana have particular use cases that could serve as a solution to the current economic crisis.

Use cases peculiar to the Ghanaian economy include saving in stablecoins such as Tether (USDt) and USD Coin (USDC), and making use of cryptocurrency for remittance and cross-border payments to aid in the facilitation of digital payments. This approach is a cheaper and faster alternative to the traditional mode of payment.

In addition to providing a solution with regard to savings and payments, blockchain technology has a lot of potential use cases that would aid in the problems that Africans face. For instance, the African start-up Bitland uses blockchain technology to help Ghanaians to obtain property rights and secure more financially stable futures. The start-up launched its pilot service in Ghana due to a local need for autonomy through improved land rights. The main goal of Bitland is to provide land registry services where they are functioning poorly, or where no land registry and title services are available to locals.

In examining the government of Ghana’s policy approach, gleaned partly through the SEC’s warning and the BoG’s recent moves, coupled with relevant parliamentary legislation, one cannot lose sight of the government’s objective to reduce the risk of inflow and outflow of decentralised digital assets that may otherwise be used to fund terrorism or other criminal activities. Assessed within the context of insecurity along the Sahel belt and specifically along Ghana’s northern and eastern borders, the threat of terrorism is real and gives cause for concern.

Even though the threat posed by cryptocurrencies to national security in general, involving terrorism in particular, has been downplayed by some research findings, such as the European Parliament’s Virtual Currencies and Terrorist Financing: Assessing the Risks and Evaluating Responses report, government policies in countries where the threat of terrorism is real or imminent show that the emergence of cryptocurrencies remains a source of serious concern for policymakers.

In alignment with this position, Dion-Schwartz et al, in their book Terrorist Use of Cryptocurrencies, find that increased use of cryptocurrencies in complementary and adjacent markets could indicate increased viability among terrorist organisations, and that widespread adoption of second-generation cryptocurrencies with advanced privacy features will enable more illicit use of these systems.

It appears, therefore, that in countries plagued by the threat of terrorism and related crimes, as in Nigeria, the risk posed to security by cryptocurrencies has been recognised as a major policy factor. In this regard, the Central Bank of Nigeria, in its Response to Regulatory Directive on Cryptocurrencies dated February 7 2021, has provided evidence of government concerns relative to the real or potential link between cryptocurrencies and terrorism.

Ghana shares similar security concerns with Nigeria, given the current southward drift of terrorist activities along the Sahel belt, specifically in Mali, Burkina Faso, Togo, and northern Nigeria. To illustrate this threat, a report published by the African Centre for the Study and Research on Terrorism indicates that the Sahel region registered a total of 82 terrorist attacks and 1,055 resultant deaths between April 2022 and June 2022. The attacks were recorded in Burkina Faso, Mali, and Niger. This situation provides ample cause for concern and has prompted calls for measures to asphyxiate the channels of sustenance for the terrorists.

As part of the measures to address these security concerns, Ghana passed legislation such as the Anti-Money Laundering Act, 2020 (Act 1044) and the Anti-Terrorism Act, 2008 (Act 762). Both pieces of legislation have provisions that regulate the inflow and outflow of currency into and out of the country. For example, Section 45 of Act 762 specifically proscribes transactions related to money laundering, tax evasion, financing terrorism, and financing of proliferation of weapons of mass destruction by accountable institutions. Section 7 of Act 1044 further makes it an offence for any person to directly or indirectly provide or make available a financial or other related service with the intention that the financial or other related service be used to commit, or facilitate the commission of, a terrorist act, or to benefit a person who is committing, or facilitating the commission of, a terrorist act.

In light of the foregoing legislative provisions, one can expect cryptocurrencies to continue to feature as a risk factor in mitigating terrorism and other cross-border security challenges, especially in Ghana, where terrorism and the proliferation of arms remain significant threats. It is evident that in the assessment of risk factors leading to the decision on whether to legalise or regulate cryptocurrencies, the current security situation in the West African region would play a significant factor.

With the imminent introduction of Ghana’s CBDC, which some see as an attempt to rival cryptocurrencies, it does not appear likely that the regulators have a strong appetite at the moment to provide a regulatory regime for the use of cryptocurrencies in Ghana.

Further still, there remains some degree of uncertainty about the legal status of some of these digital assets and their securitisation.

There is no advocacy in Ghana for legislation towards regulating cryptocurrencies; neither has there been any opportunity for the judiciary to make any pronouncements on their legal status. However, given that transactions in cryptocurrencies are going on in Ghana, it is likely that the Ghanaian courts will be called upon in the near future to state their position on this new technology. Such a judicial position, coupled with regulation examples in other jurisdictions, might engender some drive towards regulation.

As cryptocurrencies remain unregulated in Ghana, one of the key factors that could accelerate their adoption by Ghanaians is the rapid depreciation of the cedi and the consequent need for individuals to mitigate the devaluation through foreign exchange dealings and manoeuvres such as converting the cedi into stronger currencies such as the US dollar.

While the eventual introduction of the eCedi is expected to offer an alternative to crypto – even if in a very limited sense – the alluring features of cryptocurrencies, such as their much-touted annonymity and privacy, make them attractive to individuals who want to keep their transactions away from the radar system of central bank surveillance.

Even though the BoG and SEC have not provided specific reasons for cautioning against the use of cryptocurrencies, it is understood that security and anti-money laundering motivations form part of the foundation blocks for their caution. Given the security situation in the West African region, it is likely that cryptocurrencies could provide the means for an exchange of value across borders for illicit enterprises, including terrorism funding and the proliferation of small arms moving across borders.

To the extent that Ghanaian law does not specifically proscribe the use of cryptocurrencies, it remains to be seen how the relevant authorities intend to mitigate the risk of cryptocurrencies being used to fund terrorism and other illicit activities, as identified by Dion-Schwartz et al. Instead of its current position, an alternative option might be to regulate the crypto landscape in such a way as to reap its benefits while implementing controls to mitigate the risks that it poses.