In April 2019, Google Trends reported that Nigeria’s commercial hub, Lagos, had the highest Bitcoin search queries in the world. This poses the question: are Africans keen on finding an alternative to the incompetent traditional banking system?
With over half of its adult population still unbanked, it is safe to state that the Bitcoin search queries were driven by frustrations triggered by the unavailability of financial services.
The volatility of African fiat currencies is also a threat to Africa’s financial and economic sovereignty. Cross border payments are a nightmare for Africans. Months ago, the South African Rand was named the world’s most volatile currency.
As the longing for foreign investments intensifies in Africa, currency volatility is still a major barrier. Some two decades ago, the “aid narrative” was the pattern of investment in Sub-Saharan Africa. Charities and NGOs only came to the aid of Africans, seeing that the continent had no room for self sustainability.
Although, it cannot be said that the need for aid has been totally expunged, the continent has been displaying potential, and investors are equally taking note. Africa is no doubt an emerging market and investors might just help catapult the emerging economy into a sovereign financial entity. However, liquidity and volatility issues must first be addressed.
The unstable currency does not only deter investments, but it also gives the Central Banks a hard time maintaining monetary stability.
Africa needs to give room for the rise of the digital currency era, in order to solve the issues that plague its financial ecosystem, and in turn, build a financial system where the holders of the currency are the owners of the financial infrastructure.
Cryptocurrency has the potential to replace the current economic system and governance in Africa.
Several African countries already have start-ups and exchange in the cryptocurrency sphere. This has significantly improved cross border trading for these countries, and they are experiencing the bright pastures of a crypto world, as opposed to the dark traditional financial system.
The infrastructure for the adoption of cryptocurrency is somewhat ready for Africa. As it stands, Africa could leapfrog the current financial system before any other region. Although challenges of education and awareness are still existent, Africans already have some experience with digital versions of the fiat currency.
Cryptocurrencies are bound to create unprecedented opportunity for Africans to create and trade value. Similarly, inflation will be curbed easily, as cryptocurrencies will provide a stable store of value.
Financial inclusion is another area where cryptocurrencies will play a big role in Africa.
1.7 billion people in the world do not have access to financial services. A large amount of these people live in Africa. What are the implications? They live without being able to properly manage their finances, and the ability to obtain a loan, save or invest, is often ruled out.
Denied the fundamentals of financial empowerment, these people, commonly known as the “unbanked”, are prone to inhumane standards of living. They face the harsh economic realities with no sustainable financial aid.
For low income earners who are also a majority in Africa, financial services are not feasible. The cost of these services could do more in crippling their finances, than upholding it.
Undoubtedly, financial inclusion is an important part of ridding poverty and boosting prosperity in Africa. If about half of the continent’s adult population still do not have access to financial services, the Sustainable Development Goals might be a mirage for a very long time.
While a large number of Africans are without financial services a good number of them have access to mobile phones.
Last year internet users in Africa surpassed users in Latin America. 525 million Africans accessed the internet as of June of 2019. The numbers in Latin America fell slightly below this with 447 million users.
These numbers indicate the world is fast becoming digitalized and Africa isn’t left out of this race. In a world so technologically driven, Blockchain or DLT (Distributed Ledger Technology) could be the solution to Africa’s problems.
When Bitcoin broke its way into the financial scene in 2008, there was a beacon of hope, as the traditional banking system wasn’t doing enough to help citizens of every corner of the continent.
Not only will Cryptocurrencies provide an alternative means of exchange, the unbanked will easily store and manage their finances without a bank account.
A mobile phone with internet access is all that is needed to transfer, store and receive cryptocurrencies. A digital wallet can be created within minutes, without the traditional KYC (know your customer) procedure that requires the physical presence of customers.
However, Africa’s problems stem beyond fiat currency volatility or financial inclusion. The political realities in Africa also directly affects the finances of its citizens.
A nation riddled with war and political instability could displace individuals who would in turn, lose access to their finances and get stripped of their means of livelihood. With cryptocurrency, an internally displaced person or refugee, can easily gain access to all financial services, even in the face of chaos or crises.
Beyond solving the problem of financial inclusion and cross border trading. Cryptocurrencies have the potential to give Africans the power to control their wealth without intermediaries thereby opening doors to a sovereign financial and economic ecosystem.