A few years ago, digital currencies were not only a new sprout in Africa but also a tread-with-caution type of endeavor that was easy for governments to place in the red zone.
In most parts of the continent, virtual currencies were not quite able to transmogrify into a sought-after economy, partly because central banks and other kinds of financial authorities weren’t so keen on jumping on the adoption bandwagon.
Today, nevertheless, the major (or biggest) economies in the continent are looking to roll out “electronic fiat currencies” and all these developments are likely to be finalized before the end of 2021.
Case in point, earlier this year, the Central Bank of Nigeria issued a communique drafted specifically for disallowing the financial institutions in the country from having business with local crypto exchanges.
As such, it became harder for both crypto-focused startups and digital currency traders to (normally) operate. As of now, however, Nigeria is looking to roll out e-Naira—the digital version of the Nigerian Nigeria—come October 1 (in a likely commemoration of its Independence Day).
As aforementioned, Nigeria isn’t alone on the digital fiat currency-adopting bandwagon. Ghana—surprisingly Nigeria’s closest neighbor—is also on course to launch the spitting electronic image of the Cedi, one of the world’s fastest-growing currencies. Actually, the Bank of Ghana was one of the first apex banks in Africa to reveal that it was testing such a type of currency. As of June 2020, the e-cedi was already in the second (of three) implementation stage. It is expected that the experiment will be finalized by the end of this September.
Likewise, South Africa is testing a virtual currency with which it can facilitate cross-border transactions, laying the plans for a CBDC that would enable its future markets to embrace digital payments.
In May this year, the South African Reserve Bank (SARB) divulged that it is conducting some research to ascertain the desirability, appropriateness and feasibility of the digital currency—for general purpose use and for complementing cash.
CBDCs or digital fiats are similar to crypto assets like Bitcoin, Ethereum and Dogecoin in that they all fall within the “digital currency” class. However, unlike cryptocurrencies, CBDCs are issued by central banks—not by miners or crypto exchanges. More often than not, CBDCs are meant to back the paper currency of the country or market where it is launched because they ought to be designed in equivalence to cash and fit for everyday financial transactions in virtually every corner of the market dimensions in focus.
Indeed, Nigeria (Africa’s largest economy), for example, is pushing to have the eNaira as an acceptable form of payment or legal tender in every part of the country, from merchant stores to big retail outlets. According to a much recent update from the CBN, the digital currency will be provided via a mobile app (and incorporated virtual wallet) which Nigerians would be able to download as from October 1st.
Because private crypto assets are not backed by any known government, they are volatile in nature—hence market-determined fluctuations. But because CBDCs are pegged to traditional fiat, they are not volatile, which means they are suitable for everyday purchases and not necessarily for short or long-term investments as is obtainable with Bitcoin and the likes.
According to a 2021 report by the Bank for International Settlements (BIS), almost nine of every ten central banks (of the world) are in an active as well as conscious exploration of forms of CBDC. Per the survey, the central banks of nations that make up a fifth of the entire planet’s population say there is a possibility that they would issue a digital version of their paper currencies in the next three years.
Today, the only country with an officially launched CBDC is The Bahamas. In 2020, the tiny country became a global e-money leader by rolling out the Sand Dollar, an extension of the Bahamian dollar for online use.
China is also testing the virtual version of the Yuan, while jurisdictions like Japan and Sweden are following suite. The European Central Bank and the US Federal Reserve are also considering developing the infrastructure for thiers.
Why are African central banks becoming seemingly keen on rolling out digital currencies? In the Nigerian scenario, the CBN points to bolstering financial inclusion. In this country, 36 percent (about 36 million) of adults are unbanked, making the country have one of the world’s biggest unbanked populations.
Like many other African markets, cash remains king in Nigeria and smartphone penetration is quite high. Thus, accessing currencies online stands as a viable way to boost financial inclusion.
With CBDCs, countries are able to critically cut down the inefficiencies that are associated with not only printing fiat currency but also moving it from place to place. It’s a running statistic that it can cost a nation at least 1.5 percent of its GDP to manage physical cash.
Also, digital currencies go a long way in helping countries accelerate cross-border payments as well as remittances—both of which are integral aspects of the today African economy.
Other African countries such as Tunisia, Morocco, Kenya and Senegal are exploring digital possibilities in their respective financial landscapes.
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