It is impossible to talk about Africa’s quiet crypto revolution without bringing up diaspora remittance payments. Cryptocurrencies already play a tremendous role in cross-border payments around the world, particularly in Africa. Money transfers across borders account for over $500 billion of value moving across borders. And despite the COVID pandemic, remittance flows remained strong to lower and middle-income nations, concentrated largely in sub-Saharan Africa. Many crypto transactions on the continent involve remittances in the form of peer-to-peer payment.
Africa is home to the world’s smallest cryptocurrency economies, with only two percent of the global value of all cryptocurrencies received and sent. But countries like Nigeria, Senegal and Kenya are growing players in the space. Ask tech legends like Jack Dorsey, who has turned heads with his much talked about Bitcoin investment in Africa. The ubiquity of cellphones has lowered the bar for entry into the space. Further, Africa is chronically underbanked, which is a huge opportunity for crypto.
Far too much has been made of crypto crime in Africa, because of its unregulated fundamentals. And while this is a big problem, out of the top 10 countries with the highest volume of cryptocurrency from illicit addresses, South Africa is the only country from the continent in the Top Ten, according to Chainalysis. “(Nigeria) has a significant commercial crypto industry,” said Kim Grauer, Chainalysis’ head of research, who prepared the report.
Nigeria is the second largest user of Bitcoin, trading more than 60,000 bitcoins (almost $3 billion worth) since 2015. That doesn’t get a lot of coverage in Western media. Nigeria, a tech hub, is a money transfer leader in Africa on crypto-based remittances. And not just a continental leader, but a global leader. According to the BBC, Nigeria ranks third globally in terms of countries with the highest bitcoin trading volumes last year, behind only the United States and Russia. But in February, Nigeria abruptly announced that they were barring their banks and financial institutions from dealing in or facilitating transactions in cryptocurrencies altogether. “The central bank of Nigeria kind of put the kibosh on crypto,” said Dee Duncan, a “techpreneur” who helps corporations and governments develop blockchain strategies, on Coindesk. He continued: “people prefer to use bitcoin instead of the Nigerian Naira … that’s a real problem for a Central Bank.”
How is the Nigerian Central Bank dealing with this? Fixing the underlying problem with the Naira would be a good start. But cryptocurrencies are not the problem, the Naira is. The Naira has been devalued three times since the darkest days of COVID. Nigeria has had a tough time diversifying from oil, which is 9% of their economy, but has fallen as a result of the pandemic. It has announced in the aftermath of the crypto ban that Nigeria would be launching the eNaira, which should be dropping within days of this story. The largest economy in Africa in terms of nominal GDP and 26th in the World according to the IMF World Economic Outlook, is moving conservatively on digital currency, but it recognizes the growing power of crypto. Financial inclusion would be accelerated with the move, and – key point — cheaper and faster remittance inflows. It will be interesting to watch how the new eNaira fares against now underground Nigerian crypto craze.