Kenya Approves Digital Currency Legislation, Expert Warns Of Market Isolation

As stablecoins become increasingly prevalent, African administrations find themselves walking a tightrope between extraction and beneficiation. A balancing act that requires thoughtful planning, Kenya hopes its recently published Virtual Asset Service Providers (VASP) regulations will provide the stability it needs to excel in the blockchain era. 

It’s a move that gives the central bank significant autonomy over digital currency transactions. Not only does it grant them the authority to direct licensed intermediaries to restrict access on foreign-issued stablecoins such as USDT and USDC, but stablecoins must be approved by the central bank and issued by a licensed stablecoin issuer before they can be listed on regulated local exchanges.

Kenya isn’t the only nation tightening down on crypto flows. The European Union’s Markets in Crypto-Assets (MiCA) framework also requires stablecoin issuers to be authorized, while the United States and Singapore are actively working towards stricter oversight.

Meanwhile, on August 3, South Africa released draft guidelines for cross-border cryptocurrency payments, showcasing their intent to have more control. 

Making Kenya’s VASP credible is that, in the world of stablecoins, there is genuine concern over dollarization crippling African economies. In Nigeria, an International Monetary Fund (IMF) report, Stablecoins in Nigeria, cited concerns over “capital flow management and financial stability” amid the rising popularity of United States (U.S.) dollar-denominated stablecoins in the country.

The worry is that though local businesses gain transactional freedom, African economies could lose monetary independence as a greater concentration of domestic finance redirects towards U.S. issuers. 

However, while Pankaj Bengani, former executive at Jack Dorsey’s Block and co-founder of global stablecoin and digital asset network Meld, applauds Kenya for “moving stablecoins into a regulated framework rather than leaving the market in uncertainty,” he highlights that “the value of stablecoins comes from network effects.”

So, while controlling the channels of dollar-backed stablecoins, such as Tether’s USDT, is needed, Kenya must be careful not to isolate its local businesses from the deep liquidity pool they provide.

“As stablecoins become more widely used, policymakers naturally want to preserve monetary sovereignty and ensure local currencies continue to play a central role in the domestic economy,” Bengani tells FORBES AFRICA. 

“But, at the same time, dollar-denominated stablecoins processed approximately $32 trillion to $32.5 trillion of the ~$33 trillion total, or about 96%-98% of global stablecoin transfer volume in 2025.”

The point being that if VASP makes USDT and its other direct alternatives less accessible before local stablecoins offer similar reach, ironically, “the unintended consequence could be a more fragmented market with higher costs for cross-border payments.”

With the Central Bank of Kenya assuming a larger supervisory role, it’s now faced with the meticulous task of merging foreign and local stablecoins in such a manner that protects interoperability with the former, while simultaneously allowing the latter to thrive.