In a continent plagued by inflation and corruption, cryptocurrencies are helping Africans seeking financial stability and inclusion, according to Cointelegraph.
Weak national currencies, unreliable banking systems, and government corruption have hindered economic growth and financial inclusion in Africa. Cryptocurrencies can offer a way out of this cycle of instability, providing alternatives for international payments, as well as enabling efficient money transfers, and serving as a hedge against inflation.
Crypto is giving Africans the opportunity to participate in the global economy, irrespective of the limitations imposed by their local currencies or traditional banking systems. While some countries in Africa, such as Botswana, have embraced cryptocurrencies with legal frameworks in place, others have taken a more restrictive stance. Bans on banks and financial institutions working in cryptocurrency are common in Africa, but these can be evaded by using decentralized finance platforms.
Look at Zimbabwe. Earlier this year, we covered the crushing level of inflation in Zimbabwe.
Zimbabwe reintroduced the Zimbabwean dollar in 2019, with one Zimbabwean dollar equivalent to $1 USD. Since then, inflation has resurged at an alarming rate, resulting in a significant devaluation of the Zimbabwean dollar. Currently, $1 USD is equivalent to approximately 900 Zimbabwean dollars, and inflation reached a staggering 230% in January 2023.
Consequently, many businesses in Zimbabwe have reverted to demanding payments in U.S. dollars, which are in short supply. This has led many to use informal ledgers and chits to keep track of purchases. Zimbabweans with access to digital currency through decentralized finance platforms, may have an easier time retaining savings in a currency hedged against inflation.
While regulatory challenges persist, the growth of crypto-related ventures and the increasing adoption of cryptocurrencies in Africa signify the continent’s emergence as a significant player in the crypto space.
According to a report by Crypto Valley Venture Capital (CV VC) and Standard Bank, blockchain startups in Africa were able to raise $91 million in the first quarter of 2022, which is a 1,668% year-on-year increase compared with Q1 2021’s growth of 149%. The report predicts that crypto unicorns may emerge from the region within two to three years as more venture capitalists show interest in the region.
Many Africans rely on remittances from abroad or within the continent to support their families, businesses, and communities. Cryptocurrencies offer a cheaper, faster, and more accessible way to send and receive money across borders, especially in countries with high inflation and currency devaluation. Some of the leading crypto platforms in Africa are Binance, Luno, VALR, Paxful, LocalBitcoins, Quidax, Bundle Africa, and Trust Wallet. All of these provide a lively crypto environment in Africa, which is likely to continue to flourish.