A lot has been written about the potential of bitcoin for emerging economies, with an emphasis on countries in Africa. Here, local currencies have been victims poor fiscal and monetary policies. These countries, also bear the brunt of a deep rooted overdependence on the US dollar. Payment infrastructure to the rest of global economies, weak local currencies and reliance on the US dollar for settling offshore transactions are all inextricably linked.
According to a swift report,
Cross-border payments intra-Africa and between Africa and the rest of the world are skewed towards USD usage and USD clearing via North American banks. Transaction costs remain high at least partly because a large proportion of settlement processes within Africa involve banks outside of Afric
One needs not to look far, Nigeria’s economy is 90% reliant on oil exports and, the US dollar. The Naira, at 345 to the dollar, has taken a nosedive over the past year, along with the decline of commodity and oil prices. Its foreign exchange reserves have not been this low in 11 years.
The Central Bank of Nigeria is in a precarious position, cornered into imposing capital controls to salvage its dwindling forex currency reserves. Importers now queue up for a share of scarce dollar reserves; forex needs are vetted against a priority list of 41 items, from meat to concrete. Tech startups cannot pay for Facebook adverts, MailChimp subscriptions, or GoDaddy hosting online, the impact of dollar shortage, is hurting businesses, consumers, and entrepreneurs, as banks move to impose international spend restriction on naira credit and debit cards.
In this state of affairs,
Bitcoin becomes a promising alternative to the naira because it makes international purchases more convenient for consumers while also easing the strain on Nigeria’s foreign exchange reserves. Crypto Coin News
On the other side of the continent, East Africa, this particular use case is in part responsible for driving bitcoin adoption in Kenya, a frontier economy in East Africa. The country’s Central Bank recently weighed in on the subject, via a public notice warning users to beware, but simultaneously not outrightly declaring it illegal. Days after, a rebuttal to this notice, appeared in a leading newspaper, putting the matter in perspective of global bitcoin development. Since then, the bank’s comments seem to have been counter productive, the streisand effect.
The number of Kenyan searches for Bitcoin as per google trends, went up multiple times to an all time high, reminiscent of the last time Bitcoin’s price shot up to $1163. These searches are reflected on weekly volume charts from Kenya’s localbitcoins peer to peer market, where, $30,000 a week worth of BTC exchange hands, a figure that has been on an upward trajectory since March 2014.
So what’s driving these numbers?
Kenyan market makers on localbitcoins, say this demand stems mostly from speculation and payments. For instance,
- Kenya’s young forex traders using bitcoin to fund their trading accounts.
- Developers using bitcoin to pay for their hosting services abroad.
- freelancers getting paid in bitcoin and needing to convert into local currency
For international payments, bitcoin is a far superior alternative than current bank options; it only takes a couple hours versus 3 days it would take using bank wire. Additionally, it is fairly straightforward with no hidden forex charges typical of legacy payment channels.
But, not everyone is pleased by this virtual currency. Mpesa, a payment gateway owned by a dominant Telcos, is throttling Bitcoin services reliant on its gateway. BitPesa, a Kenyan bitcoin startup, had its services shut down by the Telcos, claiming bitcoin posed an AML CFT risk to its platform. Over 73% of all legal adults have local currency denominated mobile wallets, such as Mpesa. For BitPesa,this meant they could no longer offer BTC trading via this ubiquitous digital wallet.
One can make conjectures on why Safaricom might have felt its Mpesa brand was under threat now or in the future. It has partnered with international remittance companies such as Western Union, WorldRemit, Skrill, to allow deposits into its digital wallet. Any successful take off of bitcoin as an alternative payment channel would challenges its revenue streams.
This has not stopped bitcoin growth, rather, has shifted market making activity to peer to peer free markets, like localbitcoins. Digital wallets stimulate free exchange peer to peer markets to thrive. It seems, people are now trading amongst themselves, using their Mpesa wallets to make fiat transfers. You can tell from the listings on LBC.
No doubt, Nigeria and Kenya, the two largest frontier economies in West and East africa, will lead bitcoin adoption in Africa. Watch this space.