The rise in cryptocurrency usage in Africa during the last few years shows that not only are digital currencies a viable means to move funds between countries, but also that they are a valuable way for financially marginalized people to access global markets.
The Rise of Cryptocurrency
Despite regulators’ efforts to curb the trading or use of crypto currencies, their popularity continues to rise. As some studies have repeatedly shown, cryptocurrencies like bitcoin — which are seen or used as an alternative store of value — have become a necessity.
Although cryptocurrencies are volatile, they offer holders and users a degree of control over wealth that is not possible with fiat currency. In countries with high inflation and unstable currencies, cryptocurrency offers an alternative to fiat currency.
According to recent Turkish reports, crypto is a good option for residents who don’t have access or ownership rights to other stores of value, such as gold, when the currency drops quickly.
Many believe that cryptocurrency or cryptocurrency rails for transferring funds over borders have been the most valuable and effective use case. The assessment will be supported by very few critics of digital currencies that are privately issued. It is true that sending money across borders using cryptos such as XRP or Stellar is much more efficient than traditional, formal channels.
The situation in Nigeria prior to the blocking of cryptocurrency entities from the bank ecosystem showed that cryptocurrency-based money transfers have the potential surpass regular channels for money transfer. Nigerian migrants had the ability to send funds in cryptocurrencies, which allowed them to transfer money faster than traditional channels.
For senders, this meant a much lower cost of sending funds to their loved ones, while for recipients in Nigeria, cryptocurrencies — which cannot easily be controlled or censored like fiat money — gave them the option to convert funds to the local naira currency using the market rate instead of the overvalued official exchange. It was actually partly for this reason that the Central Bank of Nigeria (CBN), decided to take action against cryptocurrency entities on February 5, 2021.
However, authorities have not been able to stop the popularization of cryptocurrencies in Nigeria by this and other actions taken by the CBN. The restriction has only been successful in encouraging peer-to–peer bitcoin trading as the Useful Tulips data from the last nine months shows. The failure to regulate by both the CBN, and many other global regulators once more proves that regulation cannot stop a valuable innovation.
Global Financial Markets Access
The trading and access that cryptocurrencies offer to those living in countries less advanced than the rest is perhaps the most overlooked but crucial use case for cryptocurrencies. Indeed, in many such regions, access to certain financial products is limited by factors that range from the size of a country’s financial system to its GDP. Access to financial services can be limited in certain cases due to the relation between less developed countries and their more advanced counterparts.
There is a high chance of frosty relations resulting in restricted access to the global financial market and associated services. OFAC sanctions could prevent a Zimbabwean national from buying or trading stock on the New York Stock Exchange.
But, through certain cryptocurrency platforms, one Zimbabwean can purchase hot stocks such as Microsoft, Amazon, and Tesla. Also, investors from Africa have access to the best liquid and most profitable stocks through cryptocurrency.
Trades on the African continent are also possible using cryptocurrency to trade fiat stock. They can also trade 24 hours a day on many international cryptocurrency platforms. There are many forms of cryptocurrency trading that they can engage in, including risky futures trading and stake trading. This is because cryptocurrency can be owned by everyone, not just those financially exempt.
The Exercise of Futility: Fighting Crypto
While regulatory authorities may try to limit or ban the use cryptocurrency, reality is that it has allowed for many possibilities. Without offering anything better, or making the current financial system more beneficial for all, banning cryptocurrency use and trade is likely to prove futile.
It should be obvious to African nations that copy and paste everything their Western counterparts did to curb or stop the spread of cryptocurrency. The regulators and central banks of Africa should be aware that the launch a digital currency by their central bank (CBDC), will not bring back confidence in any currency.
To get the population to believe in a currency again after it falls, it requires more than simply giving it another name. Smart regulators need to see crypto asset popularity as a sign of lack of trust in financial systems, rather than trying to ban them from using them. This understanding of the rise in popularity of cryptocurrency should assist African central banks to craft the right regulatory responses.
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