Africa is the fastest-growing cryptocurrency market among developing economies. In late April, the Central African Republic (CAR), one of the world’s poorest countries racked with decades-long conflicts, announced a shocking decision: it was adopting Bitcoin (BTC) as a legal tender reports Solomon Oladipupo of Financemagnates.com.
It became the second country in the world to do so after the Central American country, El Salvador, which took the first move in September 2021.
Although the International Monetary Fund (IMF) kicked off against El Salvador’s move at the time, saying Bitcoin as a legal tender increased the country’s risk to financial instability, CAR in its announcement said the move places it “on the map of the world’s boldest and most visionary countries.”
Despite the worries and fear that trailed this action, one question remains: Will there be a ripple effect across Africa?
This question is now even more pertinent as monetary authorities and central banks from Africa dominated
the list of 44 countries recently invited by El Salvador’s President, Nayib Bukele, to the country’s Bitcoin Conference.
Bukele had said the meeting was “to discuss financial inclusion, digital economy, banking the unbanked, the Bitcoin rollout and its benefits in our country.”
Will other African countries be inspired by CAR and El Salvador’s step to adopt Bitcoin or other cryptocurrencies
as a legal tender? Or will they double down on their clampdowns on cryptocurrencies as already being seen?
Is Africa ripe for Bitcoin as legal tender?
Africa’s Crypto Regulation Landscape
Although Africa is still catching up with the rest of the world in terms of total turnover from cryptocurrency
trading, the region has one of the highest crypto adoption rates in the world.
This milestone is mostly being supercharged by peer-to-peer retail-sized crypto transactions.
According to the Brookings Institution, Africa is the fastest-growing cryptocurrency market among developing economies and the third-largest growing market in the world.
Chainalysis 2021 Global Crypto Adoption Index also ranks Kenya, South Africa and Nigeria among the top 10 countries in the world in terms of cryptocurrency use. However, not all countries in the continent are open to cryptocurrencies.
According to a report by the United States’ Library of Congress (LoC), of the 51 countries that have implemented a ban on cryptocurrencies, 23 are African countries.
While 4 African countries, Algeria, Egypt, Morocco and Tunisia, have placed an absolute ban on cryptocurrency, 19 countries, including Nigeria, Africa’s largest economy, have placed implicit restrictions on the digital assets.
In fact, the African Blockchain Report 2021 published on Monday by Crypto Valley Venture Capital, a Swiss blockchain investor, put these figures on 6 countries for legal sanctions on cryptocurrencies, 27 with implicit bans, 4 with absolute bans, and 17 with uncertain regulations.
In February 2021, the Central Bank of Nigeria, the apex monetary authority of Africa’s largest economy, placed an implicit ban on cryptocurrencies in the country when it ordered commercial banks in the country to shut down all cryptocurrency-related accounts.
Nonetheless, Nigeria some weeks ago issued new rules on the issuance, offering and custody of digital assets,
classifying cryptocurrency as digital assets. However, this move has been criticized as stifling the local cryptocurrency industry.
With struggling currencies, double-digit inflations and a divided cryptocurrency industry, is crypto as legal tender an option for Africa?
BTC as Legal Tender: Yay or Nay?
Experts who spoke to Finance Magnates agree that Africa is still far from seeing widespread adoption of Bitcoin as legal tender, although they noted that the continent holds potential.
Oluebube Nwosu, the Lagos-based Community Manager of KoinAndKash, believes that African countries with weak countries are more likely to consider the adoption of Bitcoin as a legal tender.
Nwosu noted that: “there
are systems that have to be put in place” before any country in the continent
can make Bitcoin legal tender.
According to him,
these include the provision of internet, electricity and thorough education to ensure the understanding of cryptocurrencies.
why I’d rather say that countries should start with moving a tiny percentage of
their reserves into Bitcoin first before going into legal tender. So many things
have to come in before the legal tender,” he added.
Stefan Ateljevic, the Founder of BitCoinPlay.Net, pointed out that distrust in government and corruption are
Ateljevic believes it is more likely that other African nations will cautiously observe the crypto experiment and what happens in CAR before committing to adoption.
“I doubt it, just like El Salvador didn’t exactly spark a crypto revolution in Latin America. Africans, like in Latin America and other developing nations, are very suspicious of anything financial, particularly if the government is involved,” he said.
On his part, Trevor Goott, Director, Africa & India at Unlimint, a global payments provider, sees
the risk of fraud and the volatility of Bitcoin as major discouragements.
Rather than going the legal tender route, governments in the continent, Goott explained, are more likely to
opt for Central Bank Digital Currencies (CBDCs) like Nigeria did in late 2021.
“In 2020, the world’s biggest crypto scam was perpetrated in South Africa. The job of a country’s central bank is to both promote financial well-being of its users and at the same time protect these same users,” Goott told Finance Magnates.
“This challenge of managing the risk of fraud is one of the major challenges when it comes to considering how best to legalize cryptos or Bitcoin,” he added.
Scott Melker, the host of The Wolf Of All Streets Podcast, explained that although Africa is the perfect breeding ground for Bitcoin adoption, pressure from the United States and the IMF are battles any country looking to adopt Bitcoin must fight.
“The IMF has a monopoly on predatory loans to struggling nations, and Bitcoin threatens this. This is
readily apparent if you look at their response to El Salvador’s adoption,
withholding a loan that was well underway,” Melker said.
“Further, Argentina was likely to adopt crypto friendly legislation until the IMF expressly forbade it.”
With these major constraints on the way to adoption and legalization, it remains to be seen how the tide will turn.