Zambia’s science and technology minister, Felix Mutati, recently announced that the country is testing technology to regulate cryptocurrency. According to Mutati, “while cryptocurrency is the future the country desires to achieve, there is a need for a policy framework that supports this revolutionary technology.” This represents a significant change in attitude towards digital currencies. The government position has generally been negative and has typically come with warnings against investing in crypto. “BEWARE OF FRAUDSTERS” one notice from the country’s central bank warned. The topic of the notice was cryptocurrency and it came with a warning about how risky an investment in cryptocurrency can be. According to a Bank of Zambia press release, some of the risks associated with cryptocurrencies include money laundering, fraud, and hacking. This document was released under the previous government and it appears that while the current government is still proceeding with caution, they are more open to possibilities presented by exploring the world of cryptocurrencies.
The recent announcement from Mutuati brings up many questions, including why there is an apparent shift in attitude and whether it is even possible or ethical for a government to regulate cryptocurrencies. Cryptocurrencies, after all, were developed in part to avoid government interference in financial transactions. Some governments have not embraced cryptocurrencies but have seen their impact on the world and have created or planned to create digital currencies regulated by their central banks. In this article, however, we will focus on the reasons countries like Zambia may be more willing to embrace cryptocurrency.
One of the major reasons a country like Zambia would embrace cryptocurrencies is the potential they offer for promoting financial inclusion. In many African countries, traditional banking services are inaccessible to a large portion of the population, particularly those in rural areas or with low incomes. Cryptocurrencies, on the other hand, can be accessed and used by anyone with a smartphone or internet connection, making them an attractive option for those who are unbanked or underbanked.
Cryptocurrencies also offer a way for individuals and businesses to access capital more easily, particularly in countries where access to traditional financing is limited. For instance, in Nigeria, cryptocurrency has become a popular means of fundraising for startups, allowing them to raise funds from a global pool of investors without going through traditional financial institutions.
Moreover, some African governments are embracing cryptocurrencies as a means of promoting innovation and entrepreneurship. With their decentralized and open nature, cryptocurrencies offer a way for entrepreneurs to develop new business models and applications, without being subject to the same regulatory barriers that traditional financial institutions face. This has contributed to the emergence of a vibrant cryptocurrency startup scene in several African countries, particularly Nigeria and South Africa.
Another factor driving the adoption of cryptocurrencies in Africa is their potential to reduce transaction costs and increase efficiency in the financial system. Part of the increase in efficiency is due to the speed of cryptocurrency transactions. This helps to enable economic activities and allows for quicker transfer of vital remittances. Furthermore, without any reliance on physical bank locations, transactions can be done at any time of day. In many African countries, the cost of sending money across borders is high, due to factors such as limited competition among banks and high fees charged by remittance providers. Cryptocurrencies, however, can be used to send money across borders at a fraction of the cost of traditional remittance services. This has led some African governments to explore the use of cryptocurrencies as a means of promoting cross-border trade and investment.
According to the United Nations, Africa could be the next frontier for cryptocurrency. The adoption of cryptocurrencies in Zambia and the rest of Africa is still in its early stages, but several governments and citizens are already becoming more open to the technology as a means of promoting financial inclusion, increasing access to capital, and improving economic growth. In 2022 the Central African Republic shocked the world by announcing that it was adopting Bitcoin as legal tender, only the second country to do so after El Salvador. The South African government has positioned the country to be the most crypto-friendly country on the continent and is considering launching its own digital currency. Kenya’s central bank may be openly wary of cryptocurrency but it is estimated that just over 10% of the country’s population owns cryptocurrency. Other African countries where cryptocurrency has gained the most ground include Zimbabwe, Ghana, Egypt, and Nigeria.
While there are risks associated with cryptocurrencies, such as volatility and the potential for fraud, many African governments are starting to see the potential benefits. As the cryptocurrency market continues to evolve and mature, it will be interesting to see how African governments continue to respond to this (relatively) new and disruptive technology.