At a time like this when the global pandemic has put more countries than ever imagined in a state of economic turmoil, Nigeria was not left out as the Central Bank created currency restrictions to reduce access to dollars. This has left multiple individuals, enterprises, institutions and businesses with limited options, hence seeking alternative ways of performing financial transactions as data now reveals the spike in the use of cryptocurrency for Intra-African and International transactions. Recent report by Chainalysis, a blockchain market intelligence firm showed that Kenya, South Africa and Nigeria are leading in the adoption of cryptocurrency while other countries in the top 10 list include Ukraine, Russia, Venezuela, China, USA, Colombia and Vietnam.
Two years ago, the Nigerian, South African and Kenyan governments were all kicking back on the adoption of cryptocurrency with concerns about a lack of regulations, security of customers as well as not considering it as a legal tender. Roughly $3.7 billion worth of cryptocurrency was transferred to and from overseas addresses to those based in Africa from July 2019 to June 2020, with $562 million of that coming in retail-sized payments under $10,000 as collated by Chainalysis.
In an emailed interview I had with Marius Reitz, General Manager for Africa at Luno, one of Africa’s oldest and leading Cryptocurrency exchanges headquartered in London, he was of the opinion that as the demand for cryptocurrency rises, there is a need for regulations to be put in place. “Regulation in the crypto industry is important for many reasons, but chief among them is consumer protection. Regulations should ensure that standards in the industry are lifted and create barriers to entry for operators with low concern (or capabilities) for consumer protection. An effective regulatory regime typically imposes obligations that promote the protection of customer funds and the crypto ecosystem more broadly.”
The South African Rand for example, has been below the dollar in the last decade and is one of the most volatile fiat currencies and as such, has overtime led to the rise in the use of cryptocurrency which for some is a better way to store the value of their money as well as perform transactions. The impact of the pandemic has also affected the valuation of the naira, making the availability of dollars a herculin task.
I also spoke with Kenyan Bitcoin miner Pauline Kithuka, who says regulations won’t change the adoption of cryptocurrency in any country. “We are currently sending each other value using Bitcoin in the region at low costs. The only problem for the government is that they are not going to collect enough revenue from foreign exchange companies.” – Pauline said
According to Marius, General Manager for Africa at Luno, with regional hubs in Johannesburg, Cape Town and Singapore said as a continent, Africa is still lacking key infrastructure such as crypto platforms to make access to cryptocurrency safer and easier. Marius also pointed out the need for education which he says is also critical. “Unfortunately, a lot of people’s first introduction to crypto is through a scam such as traders promising sky-high returns. A lot of work needs to be done to ensure improved education on the benefits and risks of cryptocurrencies which will go a long way to improving adoption”.
While in Nigeria, the CBN has handed the responsibility of regulation to the Securities and Exchange Commission, a U-turn from the CBN’s initial reaction in 2018, stating that crypto-currencies including Bitcoin, Ripples, Litecoin among others weren’t regarded as money. So far, bitcoin and others now give players in the market alternative ways of evading restrictions and regulations, strict financial oversight, cash flow monitory, unlike crypto transactions which have only ID’s and no details of the sender or receiver, and no for licensure structure.
I also spoke with Eniola Agbaoye, Manager at Andersen Tax in Nigeria who says that CBN circulated a memo preventing banks and financial institutions from having anything related to crypto, while in other countries you have banks like Santander bank using Ripple (XRP) for cross border payments. In his opinion, only capital gains or profit should be taxed at the point of selling cryptocurrency, though all transactions need to be reported.
Financial systems are fast evolving as it experiences an unprecedented transition from centralised authority to decentralised network. As the United Nations described it, Cryptocurrency is not bound by geography because it is internet based.
Therefore, the question becomes the likelihood of Central Banks and Federal Reserves of banks across Africa paying closer attention to the wider use of Cryptocurrencies, the dent in the value of currencies as a result of the economic crunch caused by the pandemic as well as possibilities of collaborating with crypto exchanges in order to catch up with the wave of this almost one decade long mode of transaction.