In November 2017, the Kingdom of Morocco became the first North African country to ban bitcoin and other cryptocurrencies. The central bank of Morocco declared that “penalties and fines” will follow any crypto transactions within the country. The enactment came roughly a week after a Moroccan domain and web hosting services provider, MTDS, disclosed its intention to accept Bitcoin-based payments.
Its justification was that “the use of cryptocurrencies entails significant risks for their users.” The belief was that cryptos aided illicit activities like trading drugs, weapons, and ransomware. What followed that announcement was that neighbouring countries began to follow suit, and it soon became a regional affair in the Middle East and North Africa (MENA).
But last week, Morocco became the first country in North Africa to move toward a cryptocurrency regulation framework bill. By announcing a partnership with the World Bank and the IMF, Bank Al-Maghrib (BAM), the central bank of Morocco, wants oversight of the crypto market.
The apex bank seeks to curb social risks like terror financing and money laundering while fostering innovation and consumer welfare. This move marks a U-turn from that November 2017 decree which outlawed crypto in the country. But why did Morocco suddenly change its mind about crypto, and what would be the impact of this move?
In a previous article, we showed some of the reasons crypto adoption is an inevitable subject in Africa. So it’s no surprise that a previously hostile government body is walking back to adjust its stance. But even more interesting is how the countries with anti-crypto governments always end up in front of the pack.
In January this year, Triple-A, a Singaporean cryptocurrency provider and aggregator, reported that 2.4 per cent of Morocco’s population owned cryptos. That put the kingdom as North Africa’s leading nation for crypto ownership. Morocco also stood among the top 50 holders of cryptocurrency by population percentage, just ahead of Portugal. Data from Useful Tulips — a platform that tracks peer-to-peer BTC trading globally — confirms the trend. In Africa, only Nigeria, South Africa, and Kenya are ahead of it.
More so, Morocco is not in isolation. This year, the Central African Republic, a nation in the continent’s heart, became the second country after El Salvador to adopt bitcoin as legal tender. While that act has attracted plenty of controversies on whether it will succeed, CAR is not backing down. Recently, it launched a crypto initiative that will aid blockchain innovation in the country.
Will this become a trend?
There are still at least six African countries with an absolute ban (both as means of payment and as a commodity to trade) on cryptocurrencies. Four of them, Algeria, Libya, Egypt, and Tunisia, are located in North Africa and are Muslim-majority states where sharia law is respected.
Egypt, Africa’s second-largest economy, banned cryptocurrencies in 2018 after its primary Islamic advisory body — Dar-al-Ifta — released a decree declaring cryptocurrencies as Haram (something prohibited in Islamic law). Islamic finance does not allow the concept of “riba” or interest. To bypass this, they introduced the Sukuk. Sukuk is an Islamic financial certificate similar to a bond in Western finance but complies with Islamic religious law. However, the income derived from the Sukuk can not be speculative, or it would no longer be permissible. That eliminates bitcoin and other cryptocurrencies because they are speculative.
The Islamic decree is not legally binding in Egypt’s case, so the Central Bank of Egypt followed it up with a warning against trading cryptocurrencies, encouraging Egyptians only to use the paper currencies it has approved. But in February 2021, a man got arrested for promoting cryptocurrencies on social media. Meanwhile, Egypt comes second to Morocco in North Africa’s crypto adoption race.
Whether Morocco’s decision will stir a new trend is still uncertain. Even though it was the first to clamp down on cryptocurrencies, there’s no guarantee that its neighbours will follow suit again. And that’s because most countries haven’t figured out how to handle cryptocurrencies. Bitcoin, the oldest crypto, is only 13 years old, and thousands of other cryptocurrencies have been launched afterwards. Meanwhile, in West Africa, a proposed single currency has been in the pipelines for nearly two decades. So it’s clear that the crypto space is much faster than most governments can cope with today.
Besides, it is not always clear that a complete embrace of cryptocurrencies is a better route. After El Salvador made bitcoin legal tender, it started adding it to its reserves. Today, its bitcoin purchases are at over 50 per cent loss. But according to Alejandro Zelaya, El Salvador’s Finance Minister, the country has only spent about 0.5% of its budget on bitcoin. Not everyone can afford this kind of experiment, especially not in Africa. However, everyone will eventually have to take a stand on crypto.