According to a USA Today report, Africa might become the next hotbed of bitcoin activity. With a hugely unfavorable remittance market on the continent, and fees that commonly rise as high as 12%, Africa is primed for massive changes in how international money transfers are handled.
It’d be a huge loss for Western Union if bitcoin cut into its business: Africans throughout the diaspora send home $32 billion a year, according to the World Bank. Right now, they pay dearly for the privilege: 12 percent of each transaction, on average. Mobile money also doesn’t much address larger economic woes back home, such as inflation and scarcity.
One large piece of the puzzle for African countries is that their local currencies tend to be extremely unstable.
Specifically, a broader application of bitcoin — as a complementary currency — could appeal to African consumers who are leery of their country’s inflationary troubles, which are a constant threat to economic stability. Hyperinflation in Zimbabwe once rendered the country’s currency nearly worthless, halting commercial activity. By contrast, because the circulation of bitcoins is capped at 21 million, the cryptocurrency is — at least theoretically — inflation-proof. As a result, proponents argue, it could serve as a trustworthy store of value in periods of economic distress.
Although bitcoin is still unstable when compared to major reserve currencies like the U.S. dollar, it is still a relatively safe store of value when compared to local money, easier to access than stocks or commodities, and much more liquid than gold or silver. Given that bitcoin only requires an internet connection, which many Africans are able to access thanks to an explosion of inexpensive smartphones, bitcoin may soon become a viable “complementary” currency in the region.
There are some indications that bitcoin solves many institutional problems for African businesses as well. Bitcoin payment providers are already in talk with major banks in Kenya, Nigeria and Zimbabwe. In February, South Africa’s Standard Bank began testing a bitcoin-trading system, although this has yet to opened up to customers.