An African Perspective on Why Cryptocurrencies Are Important for the World

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The rise in cryptocurrency use in Africa over recent years has not only demonstrated that digital currencies are now a vital way to move funds across borders, but also that cryptocurrencies can be used to access global markets for those who are financially excluded.

Cryptocurrency is Now a Necessity

Despite regulators’ efforts to limit the use and trade of cryptocurrency, the number of people who use these digital assets continues to rise. As some studies have repeatedly shown, cryptocurrencies like bitcoin — which are seen or used as an alternative store of value — have become a necessity.

Although cryptocurrencies are volatile, they offer holders and users a degree of control over their wealth that is not possible with fiat currencies. In countries with high inflation or unstable currencies, cryptocurrencies can offer an escape route that was not possible before the 2008 global financial crisis.

Recent reports from Turkey have shown that crypto is a good option for residents who don’t have access to gold or ownership of a currency that has fallen rapidly.

Many believe that cryptocurrency or cryptocurrency rails for transferring funds across borders have been the most important and best use case. The assessment will be supported by very few critics of digital currencies issued privately. It is true that sending money across borders is easier when you use cryptos like Stellar, XRP, or bitcoin cash, than if you use traditional channels, both formal and informal.

As demonstrated by the Nigerian situation before the blockade on crypto entities from the banking system, cryptocurrency-based money transfers have the potential to outperform regular channels for sending money. Nigerian migrants were able, in addition to speedy funds transfers, to send money in cryptocurrency without the need for intermediaries.

For senders, this meant a much lower cost of sending funds to their loved ones, while for recipients in Nigeria, cryptocurrencies — which cannot easily be controlled or censored like fiat money — gave them the option to convert funds to the local naira currency using the market rate instead of the overvalued official exchange. This was actually partly what prompted the Central Bank of Nigeria to finally take action against crypto entities, on February 5, 2021.

This act and subsequent moves by CBN did not stop the popularity of cryptocurrency in Nigeria as authorities had hoped. The restrictions have not promoted peer-to-peer trading of bitcoins, as Useful Tulips data from the past nine months shows. This failure to regulate by the CBN, and many other regulators around world, once again shows that regulation cannot stop a useful innovation.

Access to the Global Financial Markets

The trading opportunity and ease of access that cryptocurrencies offer to people in less-developed countries is perhaps the most important but least talked about. Indeed, in many such regions, access to certain financial products is limited by factors that range from the size of a country’s financial system to its GDP. Access to certain financial services can be limited in certain cases due to the relationship between less developed countries and their more developed counterparts.

If relations are frosty, there is a good possibility that access to the global finance system and associated services will be severely restricted. OFAC sanctions could prevent a Zimbabwean national from buying merchandise on Amazon or trading stocks on the New York Stock Exchange.

However, certain cryptocurrency platforms allow a Zimbabwean national to buy global stocks such as Microsoft, Amazon, and Tesla. With cryptocurrencies, traders in Africa can access some of the most liquid markets around the globe and profitably trade stocks.

Trades on the African continent can also be done directly on many global cryptocurrency platforms, 24 hours a day. They can also engage in risky futures, margin trading, and staking. Because cryptocurrencies can be owned by anyone, even those who are financially excluded, all of this is possible.

Fighting Cryptocurrency: A Futility Exercise

Although regulators may wish to limit or ban the use cryptocurrency, the truth of the matter is that it has opened many doors to opportunities. It is likely that trying to ban the use of cryptocurrency or make it more profitable for everyone will be futile.

This should be obvious for African countries that have copied and pasted what their Western counterparts did to stop or curtail cryptocurrency use. It should also be obvious to regulators and African central banks that the launch a central bank digital money (CBDC), will not restore confidence in a cryptocurrency.

It takes more than just giving it a new name to get people to believe in it again once a currency has fallen. Instead of trying to stop people using cryptocurrency, smart regulators should view the popularity of crypto assets in terms of lack of confidence in a financial sector. This understanding of the popularity and potential dangers of cryptocurrency will help African central banks to develop the right regulatory response.