The Curse of the Dollar, Why bitcoin matters for Africa

Commodity prices have dictated Africa’s fortunes for decades. Over the last 8 months, however, falling commodity prices have exposed the weakness of this model. I have always said, the peoples of Africa are best placed to benefit from an apolitical global currency like Bitcoin.

African economies, like Nigeria, whose ‘90% of total overseas revenue in the country is made up of petroleum exports’  have limited buffers and eventually pay the price for their petrodollar dependency. It is a reverberating theme across Sub Saharan Africa where, some local currencies are plummeting: the Ghanaian cedi, Zambian kwacha, Nigerian Naira and the Mozambican metical which, plunged 36% against the dollar end of last year:

Mozambique

To draw in the reins, Central Banks have stepped in with their monetary policy tools to choke off foreign capital outflows and protect dwindling reserves. As per Bloomberg,

Mozambique has resorted to exchange controls in a bid to stave off a currency crisis, after running down its foreign reserves to defend the metical to little avail. Nigeria, Africa’s largest oil producer, [snip] choked off supply of foreign exchange to banks and their customers to defend the naira.

Top of the list, are international trade, online commerce and purchases made while abroad, they are after all, a direct strain on reserves. Credit and debit card purchases for instance, have been banned by the Central bank of Nigeria. Mozambique as a proxy, paints a picture of the significance of these sums

Mozambicans racked up $800 million in credit- and debit-card transactions abroad last year […] more than half of the country’s 2014 exports of about $1.5 billion

So now, this dollar shortage is hurting businesses, consumers and entrepreneurs, including Nigeria’s growing tech startup ecosystem. CBN even has a list of 41 items, from meat to concrete, for priority vetting on scarce dollar allocation. Imposed limits on FX supply means the services people require, can no longer be availed.

stanchart

As Africans, our dependence on the US dollar for settlement (also subject to the whims of another sovereign’s monetary policy) means we always get the short end of the stick. This would not happen with a neutral currency, like Bitcoin.

So, our Naija friends for example, wishing to make purchases abroad, would simply buy bitcoins domestically, and use them to pay for international goods or services. For this use case,

Bitcoin becomes a promising alternative to the naira because it makes international purchases more convenient for consumers while also easing the strain on Nigeria’s foreign exchange reserves. Crypto Coin News

It is a win for all. Central banks get to protect their precious dollar reserves, and we all get to go about our business.

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