With cryptocurrency in Africa gaining a vast amount of traction over the past few years, it comes as no surprise that big players want to jump on board. As the year progressed since bitcoin’s bubble in 2017, adoption has been growing at a fast level. Consequently, a counter-narrative has emerged: Central Banks have finally acknowledged the true value of cryptocurrencies, and now want to release their own.
While new cryptocurrencies on the market isn’t always a bad thing, some banks want the prerogative to distribute these tokens as assigned to them, and only them. This is because many central banks feel as though they have the confidence of the public. In an organized discussion early in 2018 at a Brookings Institute; the General Manager of the Bank of International Settlements Agustin Carstens boldly stated that technology and cryptocurrencies are unable to substitute for all that central banks do in order to make trustworthy fiat currencies.
Pushback like this against cryptocurrencies has been the fuel for the debate on the blockchain, Bitcoin, and other digital currencies for a long time. At the core, if this, we have two fundamental dilemmas. Control, and the freedom to choose. Naturally, Central Banks won’t want to change the way things currently operate due to the obvious advantages that come with it. Conversely, cryptocurrency gains popularity through the ease in which it makes commerce far better. In addition to this, it offers far better insulation to investors’ value once the traditional financial markets go through turbulence.
If Bitcoin didn’t threaten to rip the currency-issuing monopoly banks currently enjoy to shreds, perhaps they wouldn’t be as resistant as they are now. There is a true power with a monopoly over the creation of money that is simply unmatchable. This is the core of why central banks assert the sole rights to print money. Maybe this is which blockchain technology is simply a natural reaction to years of unjust financial affairs. Blockchain technology has the potential to push sweeping reforms throughout the global financial system.
It’s important to keep a perspective of the bigger picture when weighing the pros and cons of cryptocurrency in Africa. When central banks claim they want to create their own digital currency, one must invoke the context we have just explained above. However, at times, Central Banks in some advanced economies such as the EU, the U.S Federal Reserve, Bank of Japan etc, at times genuinely try to protect their customers from fraud, hackers or any undesirable factors that may do harm.
In addition to this, central banks also claim that their presence is good for infusing trust into financial systems. For example, normally, banks do not trust each other. Because of this, the intermediary role for central banks is in place to ensure a smooth flow of transactions between them. In short, Central Banks will build and maintain confidence for traditional finance markets
This is the basis on which Carstens doubts that any technology will be able to substitute for all these “centuries of creating good practices” which, funnily enough, generates the trust that society has on currency as we know it today.
Carstens’ analysis is incomplete. If anything, it’s disingenuous as it avoids the main theme of bitcoin, and cryptocurrencies as a whole. Ending unfair currency issuing monopolies. While it’s true privately issued digital currencies can come with risks, they also have important advantages. One, being, the aspect of competition or choice. Competition helps to make free markets efficient. When a market is without this, they often see a waste of resources as a consequence, making customers worse off.
The cryptocurrency market already has an abundance of options besides bitcoin. Users have the freedom to choose between a vast amount of ‘altcoins’ such as Ethereum (ETH), Litecoin (LTC), Cardano (ADA), Dash (DASH), Monero (XMR) and many more. All of these coins were made as an attempt to give the holder a unique advantage they won’t be able to get anywhere else. With cryptocurrency, there is no monopoly. Different players are able to issue cryptocurrencies, but the market will continue to grow. With central banks, when they issue a currency, you will have no other options but that single currency. This is not up for debate, even if you have misgivings about the currency or its distribution process.
In fact, laws have been passed in order to preclude private entities from legally printing national currencies. Apparently, this is because the competition is no good when it comes to creating money. Because of this, even if you know that the party issuing the currency is corrupt or incompetent, it is the law to abide.
Proof of Central banks taking advantage of their power can be seen with Zimbabwe. Between 2004 and 2008, the Reserve Bank of Zimbabwe (RBZ) was pursuing what later became known as quasi-fiscal activities. The RBZ was running parallel expenditure activities. These activities are the reason people believe Zimbabwe went through hyperinflation, peaking at 500 billion percent. Ultimately, this was the collapse of the Zimbabwe dollar.
Consequently, the public lost confidence in this institution, and in the traditional banking system as a whole. This became clear when looking at the nature of the deposits made by most of the banks after the period of hyperinflation. Events like these are why people naturally question the importance and legitimacy of these institutions. So, imagine what happened when this very same institution announced their plans to issue a “surrogate currency” in 2016. Predictably, there was a public outcry. Many people feared this was an attempt to bring back the Zim dollar, a worthless currency. This is why cryptocurrency in Africa is important.
Cryptocurrencies offer financial freedom to those who are opposed to traditional fiat currency. This was the case in Zimbabwe once bond notes became legal tender in November 2016. However, at the time, ignorance levels were very high. Ordinary Zimbabweans simply didn’t realize they had the option to use cryptocurrencies. Now a few years later, those bond notes appear to be out, and cryptocurrency in Africa is in. Bond notes are quickly shedding value and people fear being hit hard again.
As a result, it’s actually quite perplexing to hear Carstens assert that people actually have confidence in Central Banks. What central banks are these? Maybe in Europe where Carstens hails from, there are better corporate governance standards. There are most likely also strong institutions in place to keep banks in check, a feature absent in many developing countries all over the world.
It’s ridiculous that powerful figures, birthed from rich and advanced economies wish to stifle an innovation that could help better countries all over the continent. Cryptocurrency in Africa could be huge for developing countries, but it’s shot down because innovation is not “international best practice”. Africa has experienced an unfair share of currency crises. Countries like Mozambique, Nigeria, Zambia, and Zimbabwe have all been through similar predicaments. It is clear as day that the Central Banking system doesn’t work well. This is why cryptocurrencies are such an exciting alternative that must be explored.
We must allow privately launched cryptocurrencies to compete with traditional fiat currency. With more competition for the banks, they will need to improve and implement some reforms. At the end of the day, no one is able to predict where the state of cryptocurrency will be in the next few years. Though that shouldn’t stop us from dreaming about a better future and working towards making that a reality. Cryptocurrency in Africa could truly be a game changer. Often, new technology changes people’s lives in ways that even those who created the technology could never imagine.
Will you be getting involved with cryptocurrency? The iCE3X cryptocurrency exchange allows users to deposit RAND and Naira to purchase several different cryptocurrencies. Where do you think the state of cryptocurrency will be in a few years? Let us know your thoughts in the comments below!
This article is intended to educate and should in no way be seen as investment advice or an enticement to use the ice3x.com platform. Bitcoin is highly volatile with big profit opportunities but you should also remember that you could lose part or all of your investment whenever you take part in any high risk investment. Bitcoin trading is not a regulated industry in South Africa, which in itself carries additional risks. IF YOU ARE NOT AN ASTUTE BITCOIN TRADER, SEEK INDEPENDENT FINANCIAL ADVICE BEFORE MAKING ANY INVESTMENTS.