In Africa, cryptocurrencies are getting popular. The use of cryptocurrencies like bitcoin is gaining traction in poor nations like Africa and elsewhere. This is what is said in a policy brief that was only just made public by the United Nations organization known as UNCTAD. These digital currencies are being used by a sizeable section of the populations of Kenya (8.5 percent). South Africa (7.1 percent), and Nigeria (6.3 percent). Bitcoin was acknowledged as a valid form of payment. In the Central African Republic in June.
According to the findings of the paper, widespread usage of uncontrolled digital currencies. Represents a threat to the financial system of the continent. Iwa Salami, an expert in the legal and regulatory aspects of financial technology. Discusses the potential of digital currencies in Africa in an interview that was conducted by The Conversation Africa.
Why is cryptocurrency popular in Africa?
A significant segment of the population that formerly existed on the economic margins. That has begun to embrace cryptocurrencies due to their low transaction fees and anonymity features. The vast majority of banks in Africa were inaccessible to this sector of the population. Even when they were, account holders with modest incomes were discouraged. From using their accounts because of the high transaction costs.
Since the time of independence, African countries have plagued by economic stagnation. Debt problems, and political instability, all of which have contributed to the problem. Because of this, currencies in countries like Kenya and Nigeria have become extremely weak.Which has led to rampant inflation.
It was anticipate that cryptocurrencies would solve both the problem of financial exclusion and the issue of weak native currencies.
Everyone who possesses a mobile device and connected to the internet has the chance to engage in activities. That are comparable to those conducted through financial institutions and intermediaries. Thanks to the invention of cryptocurrency. This involves both making payments and sending remittances, as well as investing money.
Those who are technically adept have a very attractive investment opportunity. They are provided with the chance to own assets that unaffected. By rising inflation and the depreciation of domestic currencies as a result of this.
The usage of cryptocurrencies is also more efficient, less expensive. And less complicated than the use of traditional methods. This is because the technology, rather of relying on intermediaries. Makes it possible for users to conduct transactions directly with one another. During the epidemic and subsequent lockdowns, these alternative currencies were easier to obtain. Than established institutions. Because of this, their utilization and expansion across Africa increased.
What does a large crypto-holding population mean?
This can make it easier for African countries to engage in economic activity. It is possible for individuals who do not have access to banks. Or banking services to pay for goods and services using cryptocurrencies.
Many people believe that dealing in cryptocurrencies offers a more secure method of conducting business. If a person does not have access to the private key for your cryptocurrency wallet. Then they will not be able to sign transactions or access your assets.
Additionally, the method promotes greater transparency. On the ledger of the publicly distributed blockchain. Each and every transaction involving cryptocurrency recorded. There are tools that make it possible for anyone to look up transaction data. Such as where a cryptocurrency sent. When it sent, and how much of it transmitted from a wallet address.
Cryptocurrencies are complicated. They demand tech savvy. 34.7% of sub-Saharan adults are illiterate and may not understand it. This flips the financial inclusion argument.
Second, while blockchain is a more secure way to transact, losing your private key means you can’t retrieve your assets. A bank account eliminates this threat.
The value of cryptocurrency might change at any given moment. (As is currently experienced in the crypto market). Individual investors who are unable to fully comprehend this asset class. Will suffer as a result of this.
Additionally, African states are concerned about maintaining their monetary sovereignty. In the event that cryptographic currencies become more widespread than traditional ones. There is a possibility that central banks will be unable to deploy monetary policy. In order to strengthen their respective economies. For the purpose of putting such a policy into action, domestic currencies utilized.
Another cause for concern is the easing of capital regulations in Africa. These measures limit the outflow of domestic capital. Any weakening could potentially generate currency rate volatility. As well as a depreciation of the indigenous currency.
The stability of the financial system is under jeopardy. This could be because of the exposure that banks have to cryptocurrency businesses. As a result of loaning them money. Transfers of cryptographic assets from one bank to another in some African countries. Including as Nigeria, are subject to restrictions.
Bitcoin’s prospects in Africa
Cryptocurrency is the future of money and the future of all financial transactions. Despite the fact that the market is currently in a bear market. Furthermore, there are signs that indicate cryptocurrencies are here to stay. One of which shown in the growing acknowledgment of cryptocurrencies by countries. At the other end of the spectrum, the governments of El Salvador. And the Central African Republic have recognized bitcoin as a form of legal tender. Despite the fact that this move has met with harsh criticism. Regarding its implementation and the impact it will have on their overall economies. This position represents one extreme.
Others, such as Nigeria, have realized the necessity of having a state-level representation of digital currencies. In the form of digital currencies issued by the central bank. There are currently a lot of other nations looking at this possibility.
It is essential to point out, despite this, that the adoption rate of digital currencies. Issued by central banks in poor nations that have already done so has been quite low. There are additional research currently being conducted by governments. Examining the economic impact of digital currencies issued by central banks and whether or not adoption is the appropriate strategy.