EBEN MABUNDA THE Central African Republic (CAR) became the first African country to declare Bitcoin legal tender and the second in the world this week after El Savador blazed the trail last September, in what can be perceived as a score for cryptocurrency by crypto pundits.
The development comes on the back of encouraging statistics where crypto usage and financial inclusion on the continent are concerned.
The CAR National Assembly believes that the new Bitcoin law will help the nation’s economic recovery. The government thereof indicated this Monday that it would establish the legal framework for cryptocurrency regulation in the country, while also establishing Bitcoin as an officially accepted currency.
The adoption of cryptocurrency brings several advantages, which include transacting, which is generally a quick, and straightforward transaction processes, the elimination of intermediaries, such as banks and online marketplaces and the use of the blockchain system — the decentralised data-storage ledger that tracks every transaction undertaken on it, among others.
By and large, crypto has aided financial inclusion on the continent with increasing P2P transactions across Africa. In fact, no region uses P2P platforms at a higher rate than African cryptocurrency users, as they account for 1,2% of all African transaction volume and 2,6% of all volume for Bitcoin, specifically.
The move, however, brings exposure on a security level coupled with the high-risk and speculative nature of cryptocurrencies whose fundamentals have been questioned by central bankers across the world.
According to the 2021 Global Crypto Adoption Index: Worldwide Adoption Jumped Over 880% with P2P (peer to peer) Platforms Driving Cryptocurrency Usage in Emerging Markets.
As the second-most-populous continent globally with about 1,5 billion people, Africa has the third fastest-growing market. Africa’s cryptocurrency market grew over 1200% by value received in the last year, but the region also has some of the highest grassroots adoption in the world, with Kenya, Nigeria, South Africa, and Tanzania all ranking in the top 20 of our Global Crypto Adoption Index.
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In addition to being the third-fastest growing cryptocurrency economy, Africa also has a bigger share of its overall transaction volume made up of retail-sized transfers than any other region at just over 7%, versus the global average of 5,5%Still, it remains the smallest, with only 2% of the global value of all cryptocurrencies.
In September 2021, El Salvador became the first country in the world to announce Bitcoin as a legal tender. El Salvador president Nayib Bukele said in November that the country is planning to develop a “Bitcoin City”.
According to the pro-Bitcoin president, sales of Bitcoin bonds with a 6,5% coupon rate within the first five years will fund the development of Bitcoin City.
Bitcoin and other cryptocurrencies dropped Monday as expectations that the Federal Reserve would move aggressively to tighten monetary policy.
Bitcoin fell 3% on Monday to around US$38500, having moved below the key US$40000 level late last Friday. The price of the largest crypto was as high as US$43000 last Thursday before the depression began.
Meanwhile, central bank digital currencies (CBDC) are fast gaining traction the world over, including in Africa. Nigeria became the first country in Africa to launch its own Central Bank Digital Currency, dubbed the eNaira, in October last year, while Ghana is said to be at an advanced stage of launching its e-cedi.
The Bank of Zambia, the Reserve Bank of Zimbabwe and the Kenyan Central Bank are also carrying out research on digital currencies. To date, nine countries have launched a digital currency — 14 are in the pilot stage while 87 others are exploring it.
Deliberations on how CBDCs could be used for cross-border payments are ongoing according to the IMF.
- Mabunda is an analyst and TV anchor at Equity Axis, a leading financial research firm in Zimbabwe. — [email protected]
