Kenya has made history as the first African nation to pass a law regulating digital assets, a bold step aimed at boosting investor confidence and protecting the economy from potential risks associated with the rise of US dollar–based stablecoins.
The Virtual Asset Service Providers Bill, passed by Parliament last week, places the Central Bank of Kenya (CBK) at the center of regulating cryptocurrencies, stablecoins, and other digital assets. The move solidifies Kenya’s position as a digital finance trailblazer in Africa — but it also comes at a time when global experts are warning that US dollar stablecoins could erode the value of local currencies in developing nations.
“The new law gives CBK the power to oversee the issuance and regulation of stablecoins and virtual assets,” said Kuria Kimani, Chair of Parliament’s Finance Committee.
Stablecoins, digital currencies pegged to traditional assets like the US dollar, are increasingly being used across Africa to save money and send payments. For countries facing inflation and currency depreciation, they offer an easy alternative. But regulators are wary.
A report by the Bank for International Settlements (BIS) recently cautioned that dollar-pegged stablecoins could “undermine monetary sovereignty” and cause “capital flight” in weaker economies. The BIS likened them to the private banknotes of the 19th century: powerful, popular, and risky.
According to analysts at Standard Chartered, nearly 99% of stablecoins are tied to the US dollar, and up to $1 trillion could shift from emerging-market banks to stablecoins in the coming years. That shift could drain local deposits, weaken currencies, and make central banks’ inflation control much harder.
Kenya’s new digital asset law aims to strike a balance. It introduces licensing for crypto service providers and sets clear rules for exchanges, custodians, and payment operators under CBK supervision. The bill also allows for “on-ramp” and “off-ramp” services, regulated channels to convert between digital assets and the Kenyan shilling, keeping financial control in local hands.
Experts at the Center for Global Development (CGDEV) have also warned that widespread use of stablecoins could shrink public revenues by reducing taxes on income, capital gains, and central bank profits.
For Kenya, the law represents both an opportunity and a warning, an opportunity to lead in fintech innovation and attract global investors, and a warning that financial independence must not be traded for digital convenience.
As one diplomat at the Indonesian Embassy in Nairobi recently noted in a discussion on digital economies:
“Innovation must not outpace regulation, or it will shape economies before governments can.”
Kenya’s proactive move could inspire other African countries to follow suit, proving that digital growth and strong regulation can coexist.