Bitcoin is the world’s first truly global currency that anyone can use to make payments and transfer funds. In Africa, bitcoin has so far been growing primarily in South Africa, Kenya, Nigeria and Ghana and is currently being used mainly as an investment and for private international remittances. But does it have the potential to become the first pan-African currency?
Bitcoin, as currency, has many attractive features that feed into the argument that bitcoin will establish itself as the leading global currency and, thereby, also as the first pan-African currency.
- Anyone with Internet access can use bitcoin
- Bitcoin is not controlled by any government or central bank
- Payments and money transfers take less than 30 minutes
- The cost of a bitcoin money transfers is minimal
- Transactions are transparent as they are publicly recorded on the blockchain
- There is a fixed supply of bitcoins, so hyperinflation cannot occur
BITCOIN REMITTANCES IN AFRICA
While, in theory, bitcoin remittances make sense in Africa the reality is that there is the (partly) costly challenge of exchanging the received bitcoins into local African currency. For this reason, bitcoin remittances are currently not the cheapest way to remit funds into Africa, according to a report by US bank Citigroup. However, as exchanges are expanding and the bitcoin economy is growing in Africa, bid/offer spreads will tighten and bitcoin remittances will become a viable way to transfer money across borders at a low cost.
Money remittances to sub-Saharan Africa, mostly sent from members of the diaspora working abroad, are expected to rise above US$41 billion by the end of 2016. It is estimated that remittances in Africa account for a country-by-country average of 5% of GDP. Established players such as Western Union and MoneyGram have traditionally been the favored remittance services used to send money to Africa from abroad, and between African countries. However, these services come at a substantial cost – the average charge of sending money to Africa being 12 per cent of the value of the transaction – the highest in the world.
This is one of the key reason why so many people in the bitcoin economy believe that bitcoin will succeed in Africa, as the costs of cryptocurrency-based remittances are substantially lower than using the before-mentioned expensive traditional Money TransferOperatorss (MTOs).
So far, consumer bitcoin remittances into Africa have only really taken place on a small scale but as the bitcoin infrastructure improves in Africa, the trend for bitcoin remittances will undoubtedly be positive.
BITCOIN AS A STORE OF WEALTH AND AS A SPENDING CURRENCY
Once bitcoin volatility reduces (which arguably will take quite some time) bitcoin will very likely become a viable store of wealth. Furthermore, as merchant adoption increase both globally and in Africa (as seen in South Africa), Africans will be able to use bitcoin as means of payment across the continent. The reality is, however, that it will take a substantially amount of time for this to occur.
In fact, bitcoin adoption correlates to some degree with Internet penetration in Africa. It is not surprising that the countries with the highest Internet penetration are also those spearheading bitcoin adoption on the continent. As affordable access to the Internet spreads in Africa, so will bitcoin as a store of wealth, a means to transfer money and as a spending currency.
To answer the question in the title of this article: YES, bitcoin could become the first pan-African currency. This could occur once internet penetration reaches the majority of the continent and global bitcoin adoptions increases, to the extent where it becomes globally recognised as legal tender. Whether that will happen or not, remains to be seen and, if it does, it will take a long time.
This article was originally posted on the new Africa-focussed bitcoin blog BitcoinAfrica.io (http://bitcoinafrica.io/2016/10/12/bitcoin-pan-african-currency/)