The African Continental Trade Free Area (AfCFTA), which is projected to swing into action this year, is set to be a game-changer in the affairs of African trade, and even global trade. With the creation of a single market in the continent and uniting 54 African nations, via restriction-free trade and commercial activities, the free-trade area is the largest in the world, in terms of the number of participating countries, since the formation of the World Trade Organization.
At the core of international trade, such as the AfCFTA, lies the dire need for efficient financial systems. Existing traditional financial systems are good for the task, but are still largely deficient. The wide scope of the AfCFTA increases the dependence of its success on a more robust financial system that can cater for such a large-scale international trade system as the AfCFTA. This opens up an avenue for cryptocurrencies to play a vital role in the facilitation of the single-market vision of the African Union (AU).
In previous years, African nations have clamoured for the creation of a single currency within the continent and geographical regions within the continent. As far back as 2003, a single currency, eco, was planned to be introduced into West Africa, by ECOWAS leaders. In similar vein, the African Monetary Union is another of such attempt at creating a unified monetary system, with the aim of creating a new unified currency in Africa, which is similar to the euro.
One of the central ideas behind the creation of a single currency is to facilitate cross-border trade. Considering that the AfCFTA expands the horizon of cross-border trade in Africa, one may begin to ponder if this is not the right time to create a unified currency for the continent, to ensure the success of the free-trade area. However, this is just a slice of the financial challenges that would need to be effectively addressed to ensure the success of the AfCFTA.
Quite interestingly, cryptocurrencies could be the hero of the scene here. Instead of having to deal with different currencies with different exchange rates in the course of trade engagements between the 54 participating countries of the AfCFTA, cryptocurrencies could be used as a universal payment medium. With a cryptocurrency like Bitcoin or simply a stablecoin backed by a basket of African currencies. All participating members can trade with anyone, from anywhere, with just a single currency. With the existence of cryptocurrencies, it would no longer be necessary to create a unified currency to facilitate cross-border trade for the AfCFTA.
Beyond the enablement of transactions in the same currency, cryptocurrencies would also make trade transactions occur almost instantaneously, as opposed to the reliance on traditional banking systems for making payments, which would take days for transactions to be completed due to institutional friction within the financial system. This is possible because cryptocurrencies would eliminate the need for intermediaries in the process, which majorly cause international transactions to take long periods to get processed.
In addition to the speed of financial transactions after the successful trading of goods and services between the participants of the free-trade area, with cryptocurrencies, cross-border transactions would also be completed at a much cheaper rate than alternative traditional financial systems.
Considering that a large percentage of Africans are still unbanked, and many of these unbanked Africans would be major participants in the new free-trade system, cryptocurrencies would also present the most suitable alternative for them to access the financial tools and services that they would require to complete the financial transactions that accompany the exchange of their goods and services within the free-trade area. Right in their pocket, cryptocurrencies can provide them access to a bank and all the financial services that they would be needing, to enable inclusive participation in the AfCFTA.
The security and detailed record of transactions, which are key features of cryptocurrencies, would also play integral roles in making the cross-border trade between the 54 Africans more efficient. The blockchains generated from cryptocurrency transactions create secure records that can be easily traced and validated. Utilizing blockchain supported by cryptocurrencies, it would be possible to track trade transactions and the complex logistics that would be involved in the transportation of goods from one country to another. This would ensure transparency in the trade process and also make the process more efficient.
The AfCFTA would provide a wonderful opportunity to showcase the immense potential of cryptocurrencies. Integrating cryptocurrencies into the financial systems that would support the AfCFTA is critical to unlocking more than what we think is currently possible with the AfCFTA. Bitcoin and cryptocurrencies, in general, could be the game-changers for the AfCFTA.