Africa a guinea pig for the feasibility of digital payment systems

Cryptocurrencies may emulate success of mobile technology

African countries may well be the proving ground for cryptocurrency technology, much as they have been for mobile telecommunication.

The term "leapfrog" is popular among Africa tech analysts, who point to how the continent embraced mobile phones at a time when few African countries had a properly developed fixed-line network.

Digital currencies could also bypass the dysfunctional banking systems that hinder the development of many African states.

For instance, the Zimbabwean-based cryptocurrency BitMari intends to step in where the country's banking system has failed. Two out of three Zimbabweans do not have a bank account, but almost all have a mobile phone. BitMari claims to have designed the first ever blockchain-based digital coupon used by women farmers. BitMari has also applied for a remittance licence to accept currency from the army of expatriates working abroad.

Zimbabwe is perhaps in a unique position to test a cryptocurrency. The country has no currency of its own. The infamous Zimdollar that resulted in hyperinflation a decade ago was scrapped in 2009. Now the US dollar, South African rand and other regional currencies are all legal tender. A digital currency would slot in within this money melting pot relatively easily, especially as it uses mobile phones as the platform of operation.

Cryptocurrency forums are springing up all over the continent. Recently, Zanzibar and Tanzania had their first digital currency get-together, attended by businesspeople who want alternatives to the creaky banking sector. In time, the forum hopes to convince tourists to use bitcoin to pay for hotels and other services, rather than foreign currency that needs to be exchanged at exorbitant rates.

Elsewhere, Nigeria is also making baby steps into digital currency. It hit a record turnover for bitcoin for the third week of July for 971,829,166 Nigerian naira (Dh11 million), according to The Cointelegraph. 

Kenya is also embracing crytptocurrency and hitching it to the hugely successful M-Pesa, or mobile phone money wallet, in use since 2005. M-Pesa allows Kenyans to use the mobile handset – even a basic pre-smartphone-era device – as a debit card. It can be used to pay bills and buy goods, as well receive money from customers. 

The digital platform BitPesa has opened in the country and Kenyans can freely buy bitcoins using their M-Pesa wallets and convert them to the local currency shillings. They can also receive bitcoin remittances from abroad. Crucially the cost of transactions is around 3 per cent – half the usual costs involved with international transactions.

Should cryptocurrencies gain hold they will have a profound effect on Africa's money flows. The World Bank notes that intra-African trade is impeded by the difficulty of financing transactions between countries. Should bitcoin become the de facto euro of Africa, a common market could form of its own volition, bypassing governments entirely.