Five Reasons Why Cryptocurrencies Could be the Solution to Africa's Payments Challenges
Africa has been on the lookout for a level playing field for transacting with the rest of the world. The rise in online transactions has been mirrored by the tremendous developments in cryptocurrencies. The birth of the digital token has brought many benefits to the emerging and developing worlds via open source technology. Africa is poised to move to wider adoption of cryptocurrency as compared to other continents with more established traditional financial systems. Globally, the continent has more countries (eight) with the highest proportion of their population who rely on mobile banking as their primary means for accessing financial services, than any other continent. With many people embracing mobile technology, the platform exists for wide adoption of apps that favor the use of cryptocurrency.
1. Cryptocurrency can beat inflation.
The corona pandemic has wrought severe economic damage on many African countries. With industries from tourism, to cross border trade shutting down for periods of up to six straight months the attendant loss in employment has been nothing short of devastating. Governments and monetary institutions have attempted to mitigate the economic impact of Covid-19 by printing extra cash to prop up various parts of their crippled economies. According to Africa, the next frontier for cryptocurrency | Africa Renewal South Sudan's inflation rate was 102% between September 2016 and September 2017, according to the World Bank. Other countries with double-digit inflation rates include Egypt, Ghana, Malawi, Mozambique, Nigeria, Zambia, and Zimbabwe. When Zimbabwe's inflation skyrocketed in 2015, forcing authorities to print $100 trillion notes (each worth just $40), some Zimbabweans turned to Bitcoin. Countries with high inflation are keen to adopt Cryptocurrency since it appears to offer a more secure store of value than their local currencies. Africa should strongly consider widespread adoption of cryptocurrency as an alternative option compared to fiat for conducting commercial transactions.
2. Cross border transactions.
Africa has long campaigned that international trade should be a main component for it’s economic growth. Financial institutions make it difficult for this trade to flourish with their nationalist policies. However, Cryptocurrency's use has made it easier to carry out cross-border transactions despite not yet being recognized as legal tender. In May 2020, Nigeria had the highest trading volume in one week of crypto currencies at $7.2 million, Kenya was second with another record week by trading $1.6 million. South Africa was third, exchanging $1.1 million in a week. Adopting Cryptocurrency will see it become a more effective and efficient payment method in Africa for cross border trade
3. Cryptocurrency can reduce remittance costs.
Remittances have become a lifeline for many in Africa, but the cost of sending cash through the banks and money transfer remains very high. According to the World Bank, banks are the most expensive agents for sending money back to Africa at 10.2% of the transferred amount, followed by money transfer operators (MTOs) at 7.7% and post offices at 5.5%. The World Bank has been recommending for decades that remittance fees be no more than 3% of the sent amount. High transfer fees are a significant reason why Africans in the diaspora have jumped on Cryptocurrency to send remittances across borders.
4. Infrastructure developments
Cryptocurrency is currently showing a lot of promise in Africa. Stakeholders in the area believe distributed technology will be vital in addressing long pending developmental issues in the region. In a country like Nigeria, policy makers are reviewing whether cryptocurrency technology can drive that nation’s industrialization journey. Companies are working together to push for cryptocurrency implementation and see if the technology will come in handy to make the roads safer. Sierra Leone has been experimenting and investing in improving a blockchain-based ID framework for its residents amid expectations it will improve voter security during elections.
5. Individual ownership of funds
Under Cryptocurrency, one is the sole owner of the private and public encryption keys that make up the cryptocurrency network identity. Ownership of funds has made it a hedge against fraud, making it a currency with strong security.
Currently, Africa is witnessing economic disruption due to the corona pandemic. There are many anticipated inventions and innovations expected to arise and positively impact on the populace after this pandemic is finally behind us. Hopefully, the continent's economy will allow cryptocurrencies to solidify their future investments since it demonstrates high performance and sustainability. There are signs already for investors turning to cryptocurrencies as a tool for diversification and hedge against uncertainties and inflation. With consideration to the ongoing development of cryptocurrencies, there are a lot of prospects for African digital currencies.