Kenyan businesses are turning to cryptocurrencies to pay foreign suppliers as the nation grapples with dollar shortages and a weakening shilling, according to a report by the International Monetary Fund (IMF). These digital assets, including Bitcoin and USDT, have emerged as a critical financial tool, particularly in the private sector.
A market survey commissioned by the IMF revealed that many domestic companies now rely on stablecoins like USDT—backed by the US dollar—to settle international contracts. This trend has gained traction during periods of domestic USD scarcity. The survey, conducted by a technical working group including officials from the Capital Markets Authority (CMA) and the Central Bank of Kenya (CBK), highlights the growing adoption of cryptocurrencies as a payment option beyond initial projections.
“Domestic companies are said to be making regular use of stablecoins such as USDT to settle contracts with foreign suppliers during domestic USD shortages,” the IMF noted.
USDT, the world’s most widely used stablecoin, is popular in Kenya. With a global market valuation of $124 billion (Sh17.76 trillion), it accounts for 49% of crypto ownership in Kenya, followed by USDC at 31% and BUSD at 9%.
The IMF found that Kenyan firms and individual users also use stablecoins as a hedge against the depreciation of the shilling. Dollar shortages and a 40% decline in the shilling’s value in 2023 drove many to cryptocurrencies for international transactions and as a store of value.
“Stablecoins are not just facilitating payments but also serve as a store of value, allowing users to safeguard their wealth against the shilling’s decline,” the IMF stated.
The CBK has prohibited banks from conducting transactions with cryptocurrency entities. However, the lack of comprehensive regulations has allowed Kenyans to bypass these restrictions. The IMF acknowledged that many private actors have found ways to circumvent the CBK’s soft ban, suggesting widespread adoption of these digital assets.
Currently, an estimated 730,000 Kenyans use cryptocurrencies, although the IMF believes the figure may be higher. Blockchain analysis firm Chainalysis ranks Kenya 21st globally in crypto adoption, underscoring the country’s vibrant market despite regulatory challenges.
Kenya’s cryptocurrency market generated approximately Sh42.4 trillion in transactions between 2021 and 2022, equivalent to nearly 20% of the GDP. This robust activity contributed Sh10 billion in taxes in 2023, marking the first time the sector directly supported government revenue.
The KRA is now exploring strategies to integrate cryptocurrency exchanges and marketplaces into its revenue systems, aiming to monitor transactions and curb tax evasion in this relatively opaque market.
The IMF has urged Kenya to implement regulations to manage the risks posed by cryptocurrencies, including threats to monetary sovereignty and financial stability. A technical working group from the CMA and CBK is tasked with assessing the sector’s impact and drafting policies to address its challenges while harnessing its potential.
As cryptocurrencies continue to fill gaps in Kenya’s financial ecosystem, their regulation and integration could play a pivotal role in shaping the nation’s economic future.