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Cryptocurrencies in Africa: Advantages and Disadvantages
By admin July 22, 2021

 

Cryptocurrency Boom in Africa

Cryptocurrencies are rising in popularity across Africa. According to data from US blockchain research firm: Chainanalysis, monthly cryptocurrency transfers rose by 55% in 2020 with South Africa, Kenya and Nigeria leading in digital currency usage. Hyperinflation, economic instability and a predominantly young population are amongst the many reasons for growing cryptocurrency usage in Africa. Despite increased use of digital currencies across Africa, the consensus around cryptocurrencies is inconclusive. Some argue that digital currencies could give rise to greater financial inclusion, while others are apprehensive of the cybercrime this technological phenomenon could lead to, which begs the question: Are cryptocurrencies inherently harmful to economies? Or are they harmful for some economies and potentially beneficial for others?

 

Advantages

 

Remittances

The hallmark of cryptocurrencies is that they are decentralized ,meaning there is no central authority to determine their value or to control the cost of transferring them. The advantages of a decentralized digital currency are evidenced in how cryptocurrencies proved to be a cost-effective medium to send remittances from developed to developing countries. Remittances are a major source of income for developing countries. In 2019, a total of $554 billion in remittances was sent to developing countries. Cryptocurrencies help migrants circumvent the large fees associated with transferring money oversees by ruling out third parties, making them beneficial to the 30 million African migrants who work abroad.

 

Financial inclusion

Cryptocurrencies can facilitate the unique nature of African economies. In many African countries the informal sector is the driving force of the economy. This sector is typically unbanked, and their financial transactions are largely unregulated. Cryptocurrencies are an asset to these economies because they grant those who are excluded from the formal economy access to a currency that is immune to national monetary policy. According to the World Bank, South Sudan’s inflation rate was 102% between 2016 and 2017. Other African countries such as Zimbabwe, Zambia, Malawi and Nigeria also face high inflation rates which makes cryptocurrencies appealing because they facilitate cross border payments and grant African’s access to a greater customer base where trade isn’t hampered by exchange rates.

 

Intra-African trade

According to the African Development Bank, Intra-African trade accounts for only 16.6% of African trade. African economies have an incentive to undervalue their currencies in order to remain competitive in the global trading economy.  Cryptocurrencies could undo this trend because they are not subject to exchange rates. Increased intra African trade could catalyze economic growth in Africa by creating an incentive to diversify African economies to include the production of manufactured goods instead of commodities. Therefore, cryptocurrencies could facilitate economic growth because goods and services won’t be devalued due to tariffs or unfavorable monetary policy.

 

Disadvantages

 

Unstable form of currency

Cryptocurrencies may offer some noteworthy benefits to developing countries, but there are some disadvantages that need to be considered. Cryptocurrencies are decentralized but that means the private sector determines the value of the currencies. Given the number of billionaires flooding to digital currency, a handful of individuals have the power to determine the value of cryptocurrencies, and they will most likely devise a strategy to have them serve their interests to the detriment of others.

 

Financial literacy

Cryptocurrencies require extensive financial literacy which is lacking in the informal business sector. In addition, digital currencies are notoriously unstable and no amount of education can circumvent the big losses associated with cryptocurrencies.

 

Cybercrime

Lastly, and most importantly, cryptocurrencies can facilitate cybercrime because the transactions can’t be tracked or traced. Therefore, cryptocurrencies can be used to fund elicit activity such as human trafficking and terrorism. However, increased regulation could address this aspect of cryptocurrencies. Regulation is currently underway in countries like Pakistan, which inspires hope in the future safety of cryptocurrencies.

 

Sindiso Mafico

 

Helpful Links:

 

Reese, F. (2019, April 29). 7 Benefits of Decentralized Currency. Bitcoin Market Journal. https://www.bitcoinmarketjournal.com/decentralized-currency/.

BBC. (2021, February 28). Cryptocurrencies: Why Nigeria is a global leader in Bitcoin trade. BBC News. https://www.bbc.com/news/world-africa-56169917.

Tarabay, J. (n.d.). How Cryptocurrency Turbocharged the Cybercrime Racket. Bloomberg.com. https://www.bloomberg.com/news/articles/2021-07-03/how-cryptocurrency-turbocharged-the-cybercrime-racket-quicktake.

 

#Africa #Cryptocurrency #Innovation #Impact #Investing #Bitcoin #Equality #Equity #SocialChange #Inflation

 

Editor’s Note:

 

The Bassiouni Group provides critical solutions and services for global institutions, governments, INGOs, corporations, small businesses, startups on a worldwide basis. We maintain a Global Consultancy Network comprised of over 1000 experts in more than 150 countries. Get in touch and let’s get to work.

 

 

 

 


Thanks for sharing !


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