Feasibility of Crypto Currencies as a Valid Legal Tender in Kenya’s Financial Market

Abstract

This study examined the feasibility of crypto currencies as a valid legal tender in Kenya’s financial market. This was achieved by reviewing the viability and stability of a free system of banking without the intervention of a Central Bank. Though the roles and responsibilities of Central Banks vary from one country to another, Central Banks are primarily agencies for monetary policy and settlement. They play important functions of lender of last resort; facilitators of sound currency and banking; and monetary policy. The study relied on two theories - Modern Monetary Theory (MMT); and New Currency Theory (NCT). Predicated on the desire to find out whether crypto currencies as a ‘free virtual banking system’ are able to achieve the monetary and fiscal stability objective of central banking, the study hypothesized that even though crypto currencies may not evolve to be a valid legal tender in Kenya’s financial market, cryptocurrencies as a free system of banking without the intervention of a Central Bank can achieve or sustain a stable economy. The study postulated that cryptocurrencies as a form of free virtual banking system without a Central Bank are likely to fall short of the monetary and fiscal stability objective of central banking as it is deficient of the essential functions of monetary and fiscal policy formulation. The study embraced both the desk top literature review and quantitative and qualitative research methodology with the aim of establishing facts about crypto currencies. The study concluded that crypto – currencies are not subject to the regulation of CBK as they fall short of the legal dictates of central banking which require licensing and regulation of bodies offering financial services. On the basis of the above conclusion, the study recommended that - as crypto – currencies are operated in stealth and on an internet platform, there is a need to revamp the e – platform to provide a better operating environment for cryptocurrencies so as to instill confidence and predictability on them.