Cryptocurrencies in Africa & World
UNCTAD in its Policy Brief No. 100 highlighted the recent phenomenal growth in the use of cryptocurrencies. Briefly noted its increasing popularity in African countries and other developing countries. The report warned of the risks to Africa’s financial system from the widespread unregulated use of digital currencies.
How is cryptocurrency growing in Africa?
- According to the policy brief, these digital currencies are being used by a significant proportion of the population of african countries:
Kenya - 8.5%
South Africa - 7.5%
Nigeria - 6.3%
Recently, the Central African Republic has become the 2nd country to adopt BITCOIN as Legal Tender.
1st was EL Salvador
Why is cryptocurrency becoming popular across the continent?
Cryptocurrency is gaining acceptance among the low-income segment of the African population. This segment was economically marginalized and most of them didn’t not have access to banks. Even when banks were accessible, they were discouraged by the High Transaction Costs.
These countries are facing Economic Stagnation-exacerbated by debt crisis and political instability.
In addition, rising Inflation is weakening domestic currencies. This is the situation in Nigeria and Kenya
Moreover, there is also a colonial view of the issue. “Franc Zone” countries such as the CAR use the franc, which is exchanged for foreign currencies through the PARIS EXCHANGE MARKET. This is because the convertibility of the franc is guaranteed by FRANCE. This means dependency on Europe.
On the other hand, promise to address the issue of domestic currencies and financial exclusions-
Anyone with a mobile phone and Internet connection can use cryptocurrencies to perform activities similar to those conducted by financial institutions. These activities include making payments, remittances and investments.
The investment part is particularly attractive because it allows an individual to hold assets, immune to rising inflation & declining home currency value.
Cryptocurrencies are easier to use than traditional methods and are also cheaper, faster to use. This is thanks to the use of peer-to-peer transactions instead of reliance on intermediaries.
These cryptocurrencies were more accessible than their traditional counterparts during the lockdown
What are the benefits of crypto to African countries? .
Holding a large number of cryptocurrency could facilitate economic activities in this way as people without access to traditional banking services are now able to pay for goods and services using cryptocurrencies.
Cryptocurrency transactions are considered more secure than traditional methods. One needs a private key to access the other's crypto wallet.
Skip 2 transactions take place on Earth with distributed Ledger. The system will facilitate transparency.
What are the demerits of currencies in the African continent?
Currency is a complex technology in the African Continent. Most of the 40% population is illiterate, hence canCan lead to a chaotic situation in countries like Africa where the people do not have the basic knowledge of how the computer system works.
Currency transaction is secured by PVK but the demerit is that if someone loses the key Then there will be no way to recover the fund.
The volatile nature of cryptocurrency is a major risk?And if someone does not understand the asset class can loss its wealth
The potential threat to the monetary sovereignty of African countries. If crypto currency is used more than domestic fiat currency, then it could lose the ability to control the monetary policy of the country by the central banks.
Widespread trip to undermine effective capital control. These controls needed to avoid the flight of capital from Africa.The weakening of control will lead to volatility in currency rate and rapid depreciation of currency value.
It is also a threat to financial.Stability, for example Can arise from significant explosive search through loans, crypto funds and banks. While some countries such as Nigeria profit from transactions between the Bank Asset services provided and banks, not all countries have security measures in place.
What is the way forward?
Ups and downs in the market of African countries.But crypto is going to be in the market for a long time.
Countries such as the CAR and El Salvador have gone as far as to adopt it as a legal tender, although the implementation part and the impact on wider economies are facing criticism .
Meanwhile, the countries such as Nigeria have recognised the need of Central bank digital currencies, that is the state representation of digital currency.
While many countries are still exploring CTC.It is important to note that the developing countries that have introduced them have little uptake. Countries are still examining the back of adopting CBDT.
As crypto is a global currency, it needs to be coordinated on a holistic approach and regulations on a worldwide level need to be maintained.
While some steps have already been taken.But those steps are still fragmented and will not serve the purpose of the cryptocurrency as a global currency.
Conclusion:
Menses represents the future of finance and financial transactions not only in Africa but around the world. A coordinated holistic approach is essential in the global economies to reap its benefits.
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