The growing use of cryptocurrencies in Africa over the past few years has not only shown that digital currencies are now an essential means of transferring funds across borders and between people, but that they are also an important means of transferring funds. ” access global markets for the financially excluded.
Crypto is an essential necessity
Despite the continued efforts of regulators to reduce the use or trading cryptocurrency, the number of users of these digital assets continues to grow. As some studies have repeatedly shown, cryptocurrencies such as bitcoin that are used as an alternative store of value have become a necessity.
Despite their volatility, cryptocurrencies offer users or holders an ability to control their wealth, which seems almost impossible with fiat currencies. Indeed, in countries ravaged by inflation or those with unstable national currencies, cryptocurrencies offer a way out that was not available to them before the global financial crisis of 2008.
As the recent example of Turkey drowning in a deep crisis has shown, when a currency depreciates rapidly in an environment where ownership or access to other stores of value like gold is restricted , residents are turning to cryptocurrencies.
Endless numbers of people believe that using cryptocurrency or transferring money in crypto assets across national borders has turned out to be the most important and possibly the best use case in the volatile economy. Very few opponents of private digital currencies will disagree with this assessment. Indeed, sending funds abroad is more efficient when you use cryptos like XRP, Stellar or Bitcoin Cash than using traditional formal and informal channels.
As the situation in Nigeria before the blockade of crypto entities in the banking ecosystem demonstrated, cryptocurrency-based remittances have the potential to go beyond the usual channels for sending money. Besides its speed, sending money in crypto has allowed Nigerian migrants to bypass many intermediaries traditionally involved in cross-border transactions.
For senders, this meant a much lower fee to send funds to loved ones. At the same time, since cryptocurrencies are difficult to control or censor, Nigerian recipients have had the opportunity to convert these funds into local currency taking advantage of higher exchange rates compared to those offered by the government. In fact, this is essentially the reason that prompted the Central Bank of Nigeria (CBN) to finally take action against crypto entities on February 5, 2021.
Of course, this act and subsequent CBN actions did not end the popularity of cryptocurrencies in Nigeria as authorities hoped. On the contrary, the restrictions have so far only succeeded in promoting peer-to-peer trading bitcoins, as data from Useful Tulips in the past nine months. This failure of the regulatory action taken by the CBN, as well as that of many other regulators around the world, proves once again that a useful innovation cannot be stopped by regulation.
Access to global financial markets
The least talked about, but equally important, cryptocurrency use case is the opportunity for exchange and the access they provide to people in developing countries. Indeed, in many of these regions, access to certain financial products is limited by factors ranging from the size of a country’s financial system to its GDP.
In some cases, access to financial services actually depends on the relationship between a less developed country and its more developed counterparts.
If relations are cold, there is a good chance that access to the global financial system and related services will be severely limited. For example, a Zimbabwean national wishing to trade stocks on the New York Stock Exchange or purchase goods on Amazon may be prevented from doing so directly due to OFAC sanctions (literally translated as ” Foreign Assets Control Office”), An organ submits directly to the orders of the US Treasury.
However, by using cryptocurrency exchange platforms, the same Zimbabwean national can effectively buy popular global stocks like Tesla, Amazon, Microsoft, etc. In other words, thanks to cryptocurrencies, African traders have access to the most liquid markets and the most profitable stocks in the world.
In addition to using cryptocurrencies to trade fiat stocks, traders on the African continent can trade cryptocurrency around the clock through numerous crypto platforms. They have indeed engaged in many other forms of trading , including staking, risky futures and trading on margin. All of this is possible because cryptocurrencies can be owned by anyone, including unbanked people.
Fighting against cryptocurrency: a futile exercise
So even though the regulators aim to stop or limit the use of cryptocurrency, the reality is that crypto has opened the door to many opportunities. The idea of banning thetradingof cryptocurrency without offering a better variant or making the current financial system beneficial to all, risks being a futile exercise.
This fact should be clear to African countries which have so far copied all measures taken by their Western counterparts to suppress or limit the use of cryptocurrencies. It should also be obvious to African central banks and regulators that launching a central bank digital currency (CBDC) will not be enough to restore confidence in a national currency.
Once a currency falls, it takes more than just giving it another name to get many people to believe it again. Therefore, instead of trying to prevent the use of cryptocurrencies, a smart regulator should view the popularity of cryptoassets as a manifestation of distrust of the financial system. On the other hand, efforts to understand and ultimately profit from the notoriety of cryptocurrencies should help African central banks to craft the appropriate regulatory response.
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