There is high potential for Africans to leapfrog some of the existing financial services, in the same way that many Africans skipped the part of owning a cumbersome and expensive landline and went straight to owning a mobile phone.
In the “old” or “traditional” system, traditional bankers in suits were the miners of the old generation, getting paid in the currency of the central bank run by un-elected officials. That system is also characterised by fiat currency being mined by the fractional reserve banking system, bank bail-outs and large costs to ordinary tax payers, amid the rise of populism.
The new central bankers are the cryptographers. The new owners of the financial infrastructure are the holders of the cryptocurrency coins, which is or could be everybody.
While cryptocurrency has been hailed for its potential in the financial sector of the developed world, one of its greatest applications has been virtually overlooked. In nations that lack dependable economic systems or governance, digital currency may offer hope. Access to finances, security and privacy of funds, and faith in a common medium of exchange, can aid many across the African continent.
Several African countries have exchanges and start-ups in the crypto space, and their businesses are recognising the significance of cryptocurrencies in fostering cross-border trade and payment. Moreover, the infrastructure for the take-off of digital tokens is solid. Telecommunication liberalisation across the continent has enabled internet accessibility remarkably. Figures from GSMA indicate that half of Africa’s population is subscribed to mobile telephony. Also, the statistics indicate that for the past two years, smartphone usage in the continent has doubled to reach 226 million.
The new finance industry will settle on where the innovation will be for smart contracts and cryptocurrencies. It is Silicon Valley’s replacement for the old infrastructure of finance and Africa’s chance to leapfrog the old system. It will position the economies of Africa for the future of finance. With Africa not having a strong legacy system in place, as is the case with the developed world, is suddenly a great advantage.
Still, too many adult people in Africa do not have access to bank accounts. This wretched situation denies countless numbers of people financial freedom. Bureaucratic tenors and economic exclusion, amongst others, have paved the way for this situation.
In 2016, a study of 10 African nations with unusual inflationary ratios, indicated that South Sudan had a huge inflation rate of 295%. Egypt had the lowest rate with 12.30%. High inflation and weak African currencies allow Bitcoin and cryptocurrencies to offer African consumers a stable store of value and an inflation hedge.
African nations have lagged in traditional banking, but the phenomenal success of Safaricom’s M-Pesa in Kenya shows that this is and can be an advantage in the coming blockchain economy. Safaricom’s success has shown that Microsoft founder Bill Gates’ adage of “Banking as a function is necessary, Banks are not”, holds very true. What M-Pesa achieved on a country scale, cryptocurrency can achieve on a pan-African scale.
Cryptocurrency remittance services in Africa have sprung up as an alternative to Western Union, and international organisations have employed blockchain technology to assist refugees. Still, it appears that many of the communities most desperate for this innovation have yet to embrace the monetary haven.
Africa’s wide adoption of cryptocurrency would further progress the move to the democratisation of financial services.
Kazakhstan became the second country in the world, after Japan, to recognise the need for the development of the cryptocurrency market system at governmental level. The development of the digital currency market, based on the Astana International Financial Centre, is the first step towards the creation of a fully-fledged ecosystem for the digital economy.
Forward-looking governments in Africa should try to emulate the developments in Japan and Kazakhstan.
