Central African Republic (CAR) became the first African government to adopt a cryptocurrency as legal tender when its legislature passed a bill on 27 April authorising the formal use of Bitcoin in the country. In justifying the decision, CAR’s president Faustin-Archange Touadera, said that adopting Bitcoin would enable “strong and inclusive growth” and place the African country on the “map of the most courageous and visionary countries in the world.”
Such optimism, however, was not shared by political opposition, and regional and multilateral stakeholders. Former prime minister and opposition leader Anicet-Georges Dologuele noted that the adoption of cryptocurrency in the CAR would be operationally void given the lack of internet penetration and limited electrification According to World Bank statistics, only 10% of the population of CAR have access to the internet. The Bank of Central African States (BEAC), which manages CAR’s current Central African CFA Franc (XAF) – a Euro-pegged currency used by the six countries that comprised the Economic and Monetary Community of Central Africa (CEMAC) – warned that CAR’s move violated regional monetary statutes. Meanwhile, the International Monetary Fund (IMF) claimed that establishing the unregulated currency as legal tender poses legal, transparency, criminal and policy risks.
CAR is not the only in country in Africa warming to more formal usage of cryptocurrencies, and in particular Bitcoin. On 16 May, El Salvador – the only other country in the world that has adopted Bitcoin as legal tender – began a summit to discuss Bitcoin, financial inclusion, and other auxiliary issues in what has been dubbed the Davos for Bitcoin. In virtual and physical attendance were central bankers and financial authorities from 44 countries. Major attendees from Africa include Nigeria, Egypt, Kenya, and Ghana; major attendees from Asia include Jordan, Pakistan, and Nepal.
Among these countries, Nigeria has seen the most significant about turn in government positioning on cryptocurrency. In February 2021, Nigerian authorities issued a ban on all cryptocurrency transactions. However, they changed tack on 15 May when the Securities and Exchange Commission (SEC) released a set of regulations pertaining to the classification, issuance, exchange, and custody of digital assets and/or tokens, including Bitcoin. The regulations suggest that cryptocurrencies will be treated as securities; however, classification will be at the discretion of the SEC. Fundraising through digital asset offerings will also be permissible at the discretion of the SEC and with a rough ceiling of NGN 10 billion.
A more dovish stance towards cryptocurrency by Nigeria and African regulators at large was inevitable given the rapid growth and penetration of the digital units of exchange. According to data from the Chainalysis platform, Africa received US$105.6bn in cryptocurrency payments between July 2020 and June 2021, representing a 1,200% increase from the previous period of observation. Three African countries – Kenya, South Africa, and Nigeria – ranked in the top ten for global peer to peer cryptocurrency transactions. Additionally, at least US$562m of the US$48bn remitted to Sub-Saharan Africa in 2019 was in cryptocurrency. The proliferation of cryptocurrency has also facilitated unique changes in the fintech space, including cryptocurrency crowdsourcing for residential real estate development, and loan syndications among marginalised creditors to high-risk debtors.
Cryptocurrency’s growing popularity, despite acute structural constraints can be attributed to the way in which it is viewed as a solution to other structural issues – namely chronic inflation, currency devaluation, and financial exclusion. Many businesses and households see cryptocurrency as a hedge against domestic price acceleration and depreciation given its upward historic trend. Additionally, a relatively low barrier to entry – a smartphone and internet connectivity – makes it accessible to the continent’s vast unbanked but smartphone endowed population. Cryptocurrencies also provides access to funding for risky ventures that would otherwise be overlooked by institutional investors, whilst bypassing the mistrust that many on the continent have of formal banking institutions and the monetary authorities. Governments like Nigeria and CAR that face a foreign exchange crunch also stand to benefit from broad adoption of cryptocurrency as the convertibility of digital coins to major global currencies could be a bridge to acquiring units like the USD.
Despite underlying contentions over malfeasance and volatility, the formalisation and proliferation of cryptocurrency use by African states carries positive ramifications for investment and investors alike, especially within an Asian context. Data by Chainalysis indicates that the largest Africa-linked cryptocurrency channel between June 2019 and June 2020 was that connecting East Asia and Africa. During that year, at least US$3.3bn was traded between the two regions. This was followed in rank by Europe, North America, and Central and Southern Asia. A large volume of the value leaving Africa is by way of remittances by Asian workers; yet inflows from Asia are highly diversified, including the purchase of goods and services and an array of capital. With this precedent, Asia finds itself in a prime position to capitalise on opportunities availed by Africa’s normalisation of cryptocurrency use. Meanwhile, Africa (in particular start-ups) can ready themselves for steadier flows of cryptocurrency investment.
‘El Salvador’s crypto-loving president is hosting the Davos for Bitcoin’, Fortune, 16 May 2022
SEC issues new regulations on issuance, exchange of cryptocurrencies in Nigeria’, The Cable, 15 May 2022
‘Why countries like the Central African Republic are adopting cryptocurrencies as legal tender’, The Hindu, 13 May 2022
‘What you need to know about CAR’s adoption of bitcoin’, African Business, 11 May 2022
‘The role of cryptocurrencies in Sub-Saharan Africa’, Brookings, 16 March 2022
The 2021 Geography of Cryptocurrency Report’, Chainalysis, October 2021
‘Africa’s crypto market has grown by $105.6 billion in the last year’, World Economic Forum, 23 September 2021
‘Cryptocurrency flows in Africa’, Brookings, 14 September 2021
‘Asia leads world in crypto investment’, Fast Forkast, 16 August 2021
‘Africa could be the next frontier for cryptocurrency’, United Nations Africa Renewal Magazine, July 2018