Botswana’s central bank has assessed the country’s cryptocurrency markets as underdeveloped, posing only “minimal” risks to financial stability at present. However, in its Financial Stability Report, the Bank of Botswana emphasized the need for proactive regulations to mitigate potential future risks associated with digital assets.
The report highlighted that as the cryptocurrency market becomes increasingly interconnected with the broader financial system, it could introduce systemic risks. Systemic risks refer to the potential for cascading failures within the financial system that could lead to economic downturns. While Botswana’s domestic markets are not currently affected, the central bank warned against complacency.
“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 wrote.
The bank also noted that risks from financial technology innovations in general are low but could increase as these technologies penetrate local markets.
While crypto poses limited risks to financial stability, the Bank of Botswana identified money laundering and terrorist financing as top national security risks linked to the financial sector. The report pointed out that the anonymity enabled by digital payment instruments creates opportunities for illicit activities.
“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 stated. It further warned that the complexity of financial technology developments facilitates the global transmission of illicit funds with low detection risks.
To address these challenges, the Bank of Botswana urged regulators to:
- Enforce compliance with Anti-Money Laundering (AML) and Counter-Terrorist Financing (CTF) regulations for virtual asset service providers, including cryptocurrency exchanges.
- Enhance market surveillance and collaborate frequently with law enforcement agencies to detect and prevent illegal activities.