Cryptos, Treasury Clash Over New Coin Reserves Rule

A version of this article appeared on The Business Daily.

The National Treasury is facing strong resistance from the cryptocurrency sector after introducing a contentious mandate requiring digital asset exchanges to deposit substantial liquid reserves within local financial institutions.

Under the newly published draft Virtual Asset Service Providers (VASP) Regulations, 2026, platforms issuing stablecoins must maintain a significant portion of their backing funds inside commercial banking channels.

The specific provision dictates that at least 30 percent of all fiat currency or cash equivalents received by an exchange in exchange for stablecoins must reside in dedicated accounts at commercial banks operating in Kenya.

These specific accounts must remain strictly segregated, and they must be designated for processing transactional activities linked directly to the ongoing issuance and immediate redemption of the digital tokens, according to the regulatory framework.

Industry participants argue that this structural constraint could severely limit operational flexibility, given that digital currencies function on global, high-velocity networks that do not align easily with the traditional opening hours or settlement cycles of domestic clearing systems.

Government officials counter that the rule protects retail investors from sudden capital flight, ensuring that domestic platforms possess sufficient hard liquidity to fulfill immediate local redemption demands during market volatility.

The regulatory push comes after parliament enacted the framework legislation last year, which formally established the primary oversight roles of both the financial sector regulators and the state fiscal agencies over digital financial assets.

The Central Bank of Kenya (CBK) assumes the primary responsibility as the licensing authority for the actual issuance of stablecoins, while the Capital Markets Authority (CMA) oversees the broader operational environment for local trading exchanges.

Tensions are rising because local operators believe the mandatory domestic cash placement could artificially increase their cost of doing business, and it could potentially force younger fintech startups out of the formal digital economy.

Furthermore, the draft rules stipulate that any remaining funds not placed in commercial bank accounts must be channeled exclusively into secure, low-risk instruments within the local market, targeting high-quality liquid assets that carry minimal market, credit, or concentration risks.

This provision effectively locks the totality of the reserve assets within the Kenyan financial ecosystem, although crypto platforms claim it defeats the inherently borderless and decentralized nature of modern digital asset management.

The National Treasury has set up a formal consultative window to receive feedback from the public and sector stakeholders, with official submissions directed to the ministry headquarters located in Nairobi before any final gazettement occurs.

This regulatory friction emerges at a time when digital currency adoption among young citizens continues to expand, as many use virtual assets for small cross-border payments, peer-to-peer trading, and alternative personal investments amid broader economic shifts.

Critics warn that overly restrictive reserve rules might push the active trading ecosystem underground, undoing the state objective of bringing the sector into an orderly, transparent, and taxable legal framework.

The executive arm, led by President Ruto, has previously expressed a willingness to engage with international financial technology entities, provided that clear guardrails against illicit financial flows and speculative consumer fraud are firmly established.

For domestic commercial banks, the incoming mandate represents a new source of cheap deposit inflows, though financial institutions will have to develop specialized compliance frameworks to properly manage the unique operational risks associated with real-time crypto redemption flows.

As the deadline for public commentary approaches, both the state regulators and digital asset firms are digging in for prolonged negotiations over the final legal composition of the reserve requirements.