Strengthening Intra-African Trade through the Adoption of Cryptocurrencies
By Oluwatobi Ojo
Decentralisation of crypto currency from the financial system is also crucial to the financial inclusion of rural and remote dwellers who do not have access to financial services. In 2021, Forbes reported Africa has the highest adoption of Bitcoin globally. This feast is attributed to the works of different organisations like Machankura, a custodian service wallet committed to removing language barriers by translating Bitcoin literature into the local African languages. They have also developed a less data-dependent way of transaction cryptocurrencies. This decentralised nature of cryptocurrencies opens doors for small and medium-sized enterprises (SMEs) and informal traders to participate actively in intra-African trade, thereby promoting inclusive economic growth.
Cryptocurrency also offers trade financing in a more accessible and affordable way than the traditional banking system. Through blockchain-based smart contracts, cryptocurrencies can facilitate secure and transparent trade financing transactions across the continent. The smart contracts are designed to fulfil the trade requirement before the release of funds, thereby reducing the risk of non-payment. This helps promote transparency and trust which is crucial in fostering trade relationships. Transactions consummated on cryptocurrency are recorded on a public ledger. This helps create an audit trail to minimise corruption and fraud.
Despite the promise of cryptocurrencies to bolster intra-African trade, volatility remains a huge concern in trading with cryptocurrencies. Cryptocurrencies are subject to fluctuation in value, often influenced by supply and demand over a short period. This poses a serious risk to small businesses and growth.
Also, a lot of African countries are still lacking in developing a robust regulatory framework for the adoption of cryptocurrencies. An unregulated cryptocurrency adoption raises valid concerns about terrorism financing, money laundering and tax remittance to the government. In June 2023, the European Union instituted the Market in Crypto Assets Regulation (MiCA)- a uniform market rule for all crypto assets. MiCA provides a regulatory framework for all crypto assets that are not currently captured by the existing financial system regulation. Rather than an outright ban on cryptocurrency trading or inconsistencies in some instances, African countries through the African Union can institute a similar regulatory approach for all cryptocurrency trading across the continent. A unified regulatory framework across the continent will repose the confidence of consumers and investors.
The adoption of cryptocurrencies holds significant potential in strengthening intra-African trade and fostering economic growth. However, crucial concerns on regulation must be duly addressed to unlock the immense economic opportunities and sustainable development across the continent.
Oluwatobi Ojo is a Nigerian writer. You can reach him via email, email@example.com