Despite regulators’ efforts to limit the trade or use of cryptocurrency, the number continues to rise. As numerous studies have shown, cryptocurrencies such as bitcoin have become a necessity.
Although cryptocurrencies are volatile, they offer holders and users a degree of control over their wealth that is not possible with fiat currencies. In countries with high inflation or unstable currencies, cryptocurrencies can offer an escape route.
Recent reports from Turkey show that when a currency is rapidly depreciating in an environment that restricts ownership or access to other stores of value, residents will move to crypto.
Many believe that cryptocurrency or cryptocurrency rails for transferring funds across borders have been the best and most important use case. This assessment will be supported by very few people who oppose digital currencies that are privately issued. It is true that sending money across borders is easier using cryptos such as XRP or Stellar than when you use traditional channels, both formal and informal.
The situation in Nigeria prior to the blocking of crypto entities from its banking ecosystem showed that cryptocurrency-based remittances could surpass regular channels for money transfer. Nigerian migrants were able, in addition to speedy funds transfers, to send money in cryptocurrencies to bypass traditional intermediaries involved in cross-border transactions.
This meant that senders could send money at a lower cost to their loved ones. For recipients in Nigeria, however, cryptocurrencies, which are not easily controlled or censored as fiat money, gave them the ability to convert funds to local currency using the market rate rather than the official exchange. It was partially for this reason that the Central Bank of Nigeria (CBN), decided to take action against crypto entities on February 5, 2020.
This act and subsequent actions by the CBN did not stop the popularity of cryptocurrency in Nigeria, as authorities had hoped. The restrictions have not been able to promote peer-2-peer bitcoin trading as the Useful Tulips data from the past nine months shows. The failure to regulate by the CBN, and many other regulators around world, once again shows that regulation cannot stop a useful innovation.
Global Financial Markets Access
The most important, but perhaps less well-known, use case for cryptocurrencies is their trading opportunities and easy access to people living in less developed countries. Access to certain financial products can be limited in these regions due to factors that vary from the country’s GDP to the size of its financial system. Access to certain financial services can be limited in certain cases due to the relationship between less developed countries and their more developed counterparts.
There is a high chance that the relationship will become frosty and access to the global financial market and associated services will be severely restricted. OFAC may prevent a Zimbabwean national from trading stocks on New York Stock Exchange, or purchasing merchandise on Amazon.
However, a Zimbabwean citizen can buy global stocks such as Microsoft, Amazon, and Tesla using certain cryptocurrency platforms. So, traders from Africa have access to some of most profitable and liquid stocks worldwide through cryptocurrency.
Trades on the African continent can also be done directly on various global cryptocurrency platforms, 24 hours a day. They can, and have, engaged with many other forms crypto trading, including staking and risky futures, margin trading, and even risky futures. This is possible due to the fact that cryptocurrencies can be held even by those who are financially excluded.
Fighting Cryptocurrency: A Futility Exercise
Although regulatory agencies may wish to restrict or stop the use of cryptocurrency, the truth is that it has opened up many new opportunities. It is unlikely that anyone will attempt to ban cryptocurrency trading or use without offering something better, or making the current financial system more beneficial for everyone.
It should be obvious to African countries, which have copied and pasted what their Western counterparts did to curb or stop the use of cryptocurrency. The regulators and central banks of Africa should be aware that the launch a digital currency by their central banks (CBDC), will not bring back confidence in a currency.
It takes more than simply giving it a new name to make people believe in it again once a currency has fallen. Instead of trying to prevent people from using crypto assets, smart regulators should view the popularity of these assets as a sign of lack of trust in the financial system. This understanding of the popularity and potential dangers associated with cryptocurrency will help African central banks to develop the right regulatory response.