Digital Assets: Crypto in Africa; Revolution or Mirage?

March 2, 2020 | Digital Assets

Grounded views on the potential for cryptocurrencies in Africa.

The jury is out on cryptocurrencies’ potential for Africa. Revolutionary financial salvation or mirage? An article by Dr. Desne Masie in African Business, which attempts to unravel the reality of cryptos in Africa, concludes that only time will tell whether cryptos will live up to their promise.

Cryptos in Africa: Scams have clouded the outlook for cryptos, but things are looking up

The crypto scams during 2018 and the resulting meltdown in the price of bitcoin, the leading cryptocurrency, queered the pitch for the adoption of digital currencies across the globe, Africa included.

But cryptos appeared to have stabilized in 2019, and not only on the price front. Improving regulatory clarity, more practical use cases and better technology have helped cryptos remain resilient.

Cryptos have shown their potential as a safe haven in the face of political state failures such as Venezuela and Zimbabwe.

The proposed launch of the Libra stablecoin by Facebook was a shot in the arm for the sector. However, the project is still beset with problems and may not see the light of day. Nevertheless, it imparted much-needed legitimacy to cryptos.

Crucially, more and more central banks are exploring the possibility of replacing their fiat physical currencies with Central Bank Digital Currencies (CBDCs).

These are positive factors working in favor of cryptos, once dubbed the fintech innovation of the decade.

But will they cut ice in Africa?

Views on the ground

According to South African economist and bitcoin enthusiast, Dawie Roodt, the South African Reserve Bank seems to be planning a regulatory sandbox. The sandbox will allow private sector players to experiment with real ideas with real consumers under regulatory supervision.

“But they are very thorough, very careful to take too big steps as far as cryptos are concerned, as they are overly conservative, like regulators everywhere,” Roodt said.

Dr. Masie points out that the Republic of Seychelles is trying to position itself as a global crypto hub similar to Zug in Switzerland. Further, offshore island states such as Malta, Gibraltar, Jersey, and the Caymans are setting up regulatory frameworks for crypto and blockchain in a tax-neutral setting.

According to Monica Singer, South Africa lead for ConsenSys, the blockchain company started by Ethereum co-founder Joseph Lubin, the imminent move by Binance into South Africa was a huge positive. Binance is the world’s largest crypto trading platform.

“Soon one of the South African banks will allow the conversion of the rand into the Binance exchange so South African investors will have the option to use this very efficient cryptocurrency exchange,” Singer said.

Professor Njuguna Ndung’u, former central bank governor of Kenya, was somewhat lukewarm. He said mobile phones had supported retail electronic payments “more than any crypto will ever do.”

Phil Mochan, founder of Koine Finance, based in the UK, feels that African central banks need to get more engaged. “With that engagement, we see the potential for digital money issuance, which in the context of Africa is more significant than asset issuance.” In any case, these projects would take years to implement, in his view.

Related Story:  IMF fintech survey: Central banks testing crypto waters

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