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Cryptocurrency banking potential in Africa

Faced with collapsing local currencies, banks in Africa may be forced to embrace cryptos.
Image: Shutterstock

Cryptocurrencies are taking over the world. The price of bitcoin is nearing $32,000 and the total market cap of BTC has soared to more than $580 billion. Long-time critics of bitcoin, including companies like PayPal and institutional investors like JP Morgan and MassMutual, have become recent converts.

At the same time, banks of all sizes have started embracing the future of cryptocurrency banking. Let us look at the banking potential of cryptocurrencies in Africa’s banking industry.

Global banks have embraced digital currencies

In many aspects, Africa tends to act as a follower, not a leader. As such, the continent’s institutions tend to wait for their global peers to launch new projects and then they implement their local versions.

Fortunately, many global banking groups have already embraced cryptocurrencies and blockchain. For example, in the United States, JP Morgan, the country’s biggest bank, has already launched JPM Coin and uses it to facilitate trillions of dollars’ worth of transactions every day. Indeed, in December, the firm announced that it had completed a live blockchain-based repo transaction using JPM Coin.

After initially criticising cryptocurrencies, Goldman Sachs appointed a head of digital assets in 2020. Meanwhile, Morgan Stanley has been offering crypto services for more than two years.  Wells Fargo is running a pilot project for its own Wells Fargo Digital Cash. Other American banks that are offering blockchain products are Bank of America, PNC Financial, and Citigroup. In September 2020, Kraken became the first crypto exchange to become a cryptocurrency bank in the US.

Similarly, several banks have joined Ripple in using its technology to facilitate large cross-border transactions. These include banks like Santander, Westpac, and Standard Chartered, among others.

At the same time, countries are also launching their digital currencies, which could incentivise banks to take a leading role in crypto development. China is already testing the digital yuan while Riksbank has started exploring digital krona.

Cryptocurrency potential in Africa

Experts believe that African banks could take an active role in promoting digital currencies because of their growing acceptance. Nigeria, for instance, is the world’s second-biggest bitcoin market after the US.

For one, cryptocurrencies have become ideal alternatives to local currencies in Africa. For example, in 2020, the Zambian kwacha dropped by more than 50% against the dollar. According to media reports, that has seen more people shift to digital currencies like Bitcoin and ETH.

Sadly, the trend is happening across Africa. In Kenya, the shilling has dropped by more than 10% while Zimbabwe does not have an effective currency. With digital currencies growing in popularity and with the economic situation worsening, it creates an ideal market positioning for Africa banks.

Indeed, African banks can learn a lot from bigger Western companies. A good example of this is Square, which is generating a substantial amount of income from small Bitcoin transactions in its Cash App app.

How African banks can incorporate crypto in their models

Fortunately, there are many ways in which African banks can incorporate digital currencies into their business models.

First, well-capitalised banks can build local digital custodial services for companies. In recent months, we have seen many companies like MicroStrategy and Square convert part of their treasuries into digital assets. This trend is just getting started, meaning that more international firms will start embracing this technology. Therefore, African banks can create local custodial services for these companies.

Second, African investment banks can start providing digital assets investment solutions possibly tailored to high net-worth individuals. That would be a good approach for them to diversify their solutions from traditional assets like bonds and stocks.

Third, African banks should consider partnering with well-established global firms to come up with products that simplify their solutions. For example, we have seen JP Morgan settle repo transactions using the JPM Coin. We believe that African banks could do well by creating blockchain-based partnerships.

Finally, another low-hanging fruit is to incorporate bitcoin into their digital banking offerings. For example, wouldn’t it be nice to be able to invest in bitcoin or ETH direct from a banking app?

Final thoughts

The biggest challenge African banks will face when it comes to blockchain technology will be regulations. For one, most regulators are not well-versed with the technology. Perhaps there is a fear over the role of their fiat currencies if most people start using cryptocurrencies. Still, most of the regulators will have to learn from their developed country peers and come up with progressive cryptocurrency banking regulations.

Crispus Nyaga is a Kenyan financial analyst, coach, and trader with more than eight years in the industry. He has worked for leading companies like ATFX, easyMarkets, and OctaFx.


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Quantitative easing. The tool for self supporting country,s. The not be able to hold up their pants, digital currency looks promising. Included is the word chain and block. Reading the fine print it sounds back to the future for Africa. Wealth, created out of hardware, replaced with software. Making a few rich, the rest depended. A socialist dream of many, coming true.

VIVA — MTI version 2 coming !!! Buy popcorn

This seems to advocate using Crypto because you can rather than for any sound economic reason. It’s much the same as Dollarizing your economy and I can’t see anything in this article that suggests there are other benefits.

You got a point, possibly Crypto will become replace the Petro-Dollar, but the underlying “asset” is the Dollar

…..WHICH crypto to replace the petro-Dollar? There’s over 2,000 cryptos. Pick one. The crypto space is dynamic. Ten years from know, we could see ANY of the other cryptos showing better promise than BTC. And BTC may virtually disappear, as the next kid on the block bumps it off the stage…

Crypto, as exciting as it is, is still in its infancy. A LOT can and will still change. Crypto needs to provide more trust if it wants to be universally accepted.

Huh? Try doing business in Africa, it took me 3 WEEKS! and 3% in fees to close and move a corporate account offshore. International payments are a joke with joke Africa currencies. XRP or Bitcoin would have cost me around R40 and taken seconds.

Agree 100% but my point is why not use the US$ rather than the joke African currencies? US$ payments transact via New York so they are two day value at worst and it leaves your beneficiary to deal with any conversion to the JAC.

However your point about transaction costs is a good one although I haven’t the experience to validate your R40, not sure what the underlying ad valorem % was.

Just not sure I get crypto-currencies but it’s helpful having these interactions as it is useful to help with my lack of knowledge. Thanks

African currencies collapse because the banking system has collapsed. The reserve bank is the lender of last resort to save the banking system. The reserve bank prints currency to create liquidity for the banking system. The issues start with bad politics and poor economic management. Those losses spill over to infect the banking system. That forces the reserve bank to devalue the currency.

This brings us to the point – how do I trust the bank with my bitcoin when that bank does not have a lender of last resort to bail it out? Fractional reserve-based lending is a crucial part of the business model of banks. This implies that if I deposit one bitcoin into my account, the bank can lend 10 bitcoin to borrowers. When one of those borrowers cannot repay the loan, then my bitcoin has evaporated under the African sun. There is no reserve bank to act as lender of last resort to guarantee my bitcoin.

When crypto becomes the norm for the banking system in Africa, it implies that the depositor will take over the role of the reserve bank as the lender of last resort. Banks act as financial intermediaries. A modern economy depends on the banking system. A barter economy can operate with crypto wallets to sidestep the banking system.

This is the conundrum – for wide acceptance in trade, cryptocurrencies rely on the banking system, which relies on the reserve bank, which relies on fiat currencies, which rely on the health of the banking system, which is dependent on economic policy.

I am eagerly awaiting the next episode of the MTI saga..
If blockchain is so safe & traceable this should be soon.
Granted I know very very little of crypto..

Crypto is the future & simply amazing. For example, it’s blockchain holds an unchangeable ledger of past transactions.

If I understand crypto correctly, it should be easy to catch and imprison each of every one of the MTI crooks….

(If not & I am wrong, then blockchain is a disappointing failure. Useless. Only to benefit criminals.)

In the MTI saga, they got members to hand over control of their BTC wallets to others…to make it grow. Peter to pay Paul. It’s like handing your online banking login-details to another unknown party, and expected them to make your money grow 😉

The worlds currency problems all stem from the enormous privelage of the fiat currency the USD being the world’s reserve currency.

Cryptos will lessen that.

Should the world adopt cryptocurrency as a medium of exchange, i m pretty sure Bitcoin will be set as a world reserve also.

Given the population of the world and the needs of each individual, the discipline ‘ECONOMICS’ comes to the fore. Any form of currency (including Crypto) needs to be subject to contractionary and expansionary MONETARY policies to control the level of spending. This is when we now talk about interest, inflation, (un)employment, debt, consumption etc…
My point is this, crypto is free from all the hassles because it is not yet adopted as a currency on a grand scale. All what some people see is how miraculous it is. As soon as it is adopted, it will inherit ALL economic factors (inflation,interest etc…as mentioned earlier) subjected to the current fiat currency in use.

It will only be an alternative by name and technology only. ECONOMICS will still be the master.

”In Africa, even the phonograph is still not of any commercial value”

Cryptocurrencies are not legal tender in any jurisdiction; they, unlike the conventional currencies issued by a monetary authority, are not controlled or regulated and their price is determined by the supply and demand of their market

Both the SEC and the Commodity Futures Trading Commission (CFTC) currently have some statutory authority to oversee crypto-markets and they have recently started enforcing regulations on the sector more rigorously.

The current level of regulatory oversight by these agencies is insufficient

After the Chinese Sneeze, methinks Africa’s reputation as a hotbed of disease, hunger, and corruption – can only be saved by ”Mahala”. China, the new ”Colonial” master and ”Morena” in Africa (that are responsible for the pandemic), is so far conspicuous by their absence.

Whatever scope that was left for businesses and emerging partners to join governments in the fight against all these diseases was destroyed by pointless and damaging intervention by short-sighted and careless scientists and politicians, in Africa. On this continent, not a lot of governments will allow the market mechanism to provide the solutions despite the fact that this mechanism has a proven track record, in most critical market conditions.

Unfortunately, many African countries will be much more seriously affected by the socioeconomic consequences of the global economic slowdown triggered by the pandemic.
Most European Countries know that African debt will become a greater global concern in 2021 as many African states remain the world’s poorest and most fragile and have been hard hit by the economic and financial costs imposed by the pandemic.

The DSSI has made $5.4-billion in African debt owed in 2020 eligible for deferment. This, however, is only a fraction of the $13.6-billion in interest and principal owed by sub-Saharan African states to bilateral creditors (many of them are not part of the G20).

No. I would not like to invest in Crypto via my banking app.

I am trying to get away from them as far as possible.

Crypto can no longer be ignored and should form part of a diversified portfolio.

Oh and everything crypto related is not a scam (might be a bubble from time to time??). Before Crypto all scams were Fiat denominated.

Ignore it at your peril.

Hmmm…. crypto…banking products….sounds like fertile ground for the next Ponzi scheme to be packaged with inventive smoke & mirrors.

While crypto & new tech is to be embraced, it’s fear-mongering articles like these (spelling the end of FIAT soon) that lead many to Karatbars, etc with no idea what they’re getting into.

Crypto is all valid. Like FIAT.

And within this space, for coming up with Ponzi/MLM schemes is even bigger. I cannot hold my excitement what 2021 will bring the ‘well informed’? It better be returns in excess of 15% per month, or I’m not interested 😉

The reason I got into cryto was so I don’t have to have my money in an African Bank!!! Lol nobody fleeces an African
Quite like a fellow African….

End of comments.





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