- A recent report by UNCTAD established that Kenya is fifth among the top 20 developing countries, and the first in Africa in terms of ownership of digital currencies.
- Iwa Salami, Reader (Associate Professor) in Law, University of East London, believes that crypto has its good and bad side, but can succeed if it lives up to its promise.
Cryptocurrency is gaining ground in Africa with countries including Kenya, South Africa, and Nigeria leading the adoption rate. A recent report by UNCTAD established that Kenya is fifth among the top 20 developing countries, and the first in Africa in terms of ownership of digital currencies.
About 8.5 percent of the country’s population owns cryptos. The other countries with high crypto ownership in Africa are South Africa (7.1 percent) and Nigeria (6.3 percent.). Recently, the Central African Republic became the first country in Africa and the second in the world behind El Salvador to recognize Bitcoin as a legal tender. As digital assets gain popularity, the United Nations agency’s report cautions that their unregulated nature poses a huge threat to the continent’s financial system.
In a statement made by Iwa Salami, Reader (Associate Professor) in Law, University of East London, cryptocurrency requires technological astuteness, and with the higher illiteracy rate in Africa, it may turn out to be difficult to grasp.
The downside of crypto in Africa
He also argued that the downside of blockchain makes the traditional Banks an ideal, as losing private keys means funds are lost forever. Thirdly, he believes that the volatile nature of the asset class is a huge problem, especially for those who do not understand it well.
According to him, this has had a massive adverse effect on retail investors. Another major downside is that crypto poses a potential threat to monetary sovereignty. This may end up affecting a country in the long run as the Central Bank may be unable to use monetary policy to change the direction of an economy when digital assets are used more than fiat. Crypto also weakens effective capital control in African states according to Salami.
In the article, he mentioned that the popularity of crypto in Africa stems from their cheaper transaction cost coupled with the speed of facilitation. Also, it is convenient as everyone with a mobile phone and internet connectivity can access them without going through queues and other challenges faced in traditional banks. Another reason is the rising inflation in most African countries, making cryptos the perfect alternative.
Regardless of its downsides, crypto can facilitate economic activities as people with no bank accounts can buy goods and services without hassle. Crypto transactions are also said to be more secure and transparent. All other things being equal, digital currencies are here to stay and their widespread adoption makes them the future of finance. Salami also stated that many countries including Nigeria have found the need to introduce a state representation of digital currencies, Central Bank Digital Currency (CBDC).
But if cryptocurrencies are to live up to their promise, both on the African continent and elsewhere, there must be a globally coordinated and holistic approach to regulation, since transactions are global.