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CBDC Development on the African Continent | Bankless Africa Newsletter
This is Bankless Africa Newsletter, a newsletter that helps you stay up to date with well-curated news about crypto and Web3 around Africa.
Hey Bankless fam!
We'll start with a brief look at Bitcoin's price. This week, it stabilised at 22,000 USD, but it's unclear where it will head next. The Ethereum merge is set for September, or so it seems. Will we see another dip and continuation of the recent downward trend volatility? Or will we see an uptick and test new peaks? Only time will tell!
We are officially now Bankless Africa(with a space), the community voted in favour of this, we were formally BanklessAfrica(without a space).
In the editorial, we take a look at the rise of CBDCs on the African continent. These are centralised alternatives to the decentralised cryptocurrency space, they have the potential to change how money is seen and used in Africa.
In other news, the GoodDollar co-founder Anna Stone gave our podcast a visit, to discuss what it takes to build a more equitable world. She spoke of the significance of impact DAOs through new incentive models, to solve existing problems and function as a driver for equitable wealth distribution.
In our current affairs updates, we discuss how The Central African Republic (CAR) is set to start the sales of their Sango coin starting July 25, 2022. In other updates, the LBank CEO believes that blockchain adoption will help solve Africa's economic problems in their different forms. The Nigerian Central Bank Governor recently remarked that fintech and cryptocurrencies, among other technologies, have forced banks and financial institutions to change the way they operate.
And finally, in the learning centre: Liquidity Pools. What are they? How do they work?
Thanks for reading BanklessAfrica Newsletter. Stay up to date with Web3 alpha, insights, news and opinion in and around Africa and the Diaspora. Subscribe Now!
📈 Historical Snapshots
As of July 24th , 2022
Top Assets by Market Cap
Name: Bitcoin (BTC) Price: $22,818.13 Market Cap: $436,149,877,719
Name: Ethereum (ETH) Price: $1,610.64 Market Cap: $196,467,644,403
Name: Tether (USDT) Price: $1 Market Cap: $65,840,820,499
A Centralized Alternative to Cryptocurrencies?
CBDC Development on the African Continent
In a Bankless Africa Newsletter article from June 27th, we gave readers a high-level overview of the crypto regulation landscape in Africa. Ranging from an absolute ban in Egypt, to bitcoin’s status as legal tender in the Central African Republic, the ways in which African nation states are choosing to respond to this emerging technology with regards to the disruption of the financial system is both widely varied and continuously evolving.
Of course, governments continue to face unique questions about what a new decentralized currency could mean for state sovereignty, control, and integration into the global financial system. Unlike traditional financial institutions which are often subject to transnational regulatory frameworks, there is no official global governance body that exists for cryptocurrencies just yet; states are therefore left to decide for themselves how to respond.
CBDC Development Stages Across Africa
Even as they continue to field questions and doubts about what the regulation of decentralized cryptocurrencies would entail, many governments are exploring the creation of a centralized alternative to cryptocurrencies, known as Central Bank Digital Currencies (CBDCs). These state-created electronic cash systems are based on similar technology and computing principles as cryptocurrencies; the difference is that they are monitored by governments.
The overall scope of CBDC development in Africa can be categorized into four main stages:
No CBDC plans announced
Nigeria stands out as the sole country on the continent to have already launched a CBDC; in October 2021, the Central Bank of Nigeria (CBN) officially launched the e-Naira through a technical partnership with global Fintech company Bitt Inc. Globally speaking, Nigeria is the second country to fully launch a CBDC to the public, after the Bahamas. The proposed aims of the e-Naira include increased financial inclusion, facilitation of seamless remittance processes, reduction of informal payments (i.e. increased transparency of payments in the informal economy), and improved efficiency of cross-border payments.
Next in line in terms of CBDC development stages are Ghana and South Africa, who are both in the pilot phases of their development.
The Bank of Ghana is partnering with ‘G+D technology provider’ to test the e-Cedi, which Central Bank regulators say must work seamlessly with mobile money to “complement and enhance [the] existing payment systems.” The South African Reserve Bank is also experimenting, but with a wholesale CBDC, known as Project Khokha, which will involve some of the major South African banks. This CBDC project introduces an interbank payments settlement system based on a Distributed Ledger Technology (DLT).
Perhaps one of the most puzzling trends in CBDC adoption across Africa is the fact that countries in the research stages include both crypto-friendly nations (e.g. Kenya) and crypto-hostile nations (e.g. Egypt). In addition to Kenya and Egypt, the other 12 countries that are said to be in their research stages are Burkina Faso, Côte d'Ivoire, Guinea-Bissau, Madagascar, Mauritius, Rwanda, Togo, Tunisia, Tanzania, Uganda, Zambia, and Zimbabwe.
The remaining 35 African countries, primarily those concentrated in the Central and Southwest regions of Africa, the Sahara Desert and the Sahel region, have not announced any plans to develop or even consider adopting a CBDC.
CBDC Development Versus Crypto Regulation
It is interesting to compare the current status of cryptocurrencies to CBDCs in each country; just as the approaches to regulation are mixed, we see notable variations in the development of CBDCs across the continent. In some cases, the development of CBDCs is arguably a more direct response to the emergence of cryptocurrencies, given that CBDCs offer a centralized alternative to cryptocurrencies. In other cases, it’s a move to target socio-economic issues that have plagued the countries for quite a lengthy period; CBDCs could play an important part in creating a positive point of inflection.
The 2x2 table below juxtaposes countries that have banned cryptocurrencies against whether or not they have commenced development of a CBDC. For simplicity purposes, a country defined as having a ‘crypto ban’ includes both absolute and implicit bans. CBDC development includes any stage of development (research, pilot, or launched).
Interestingly, there are five countries developing a CBDC despite having either implicitly or absolutely banned cryptocurrencies. Egypt, for example, bans crypto under Islamic law, calling it “haram.” However, the Central Bank of Egypt (CBE) announced in December 2018 that they were researching a CBDC, noting that this could help keep issuance and transaction costs to a minimum when compared to banknotes. Perhaps one explanation for a country banning cryptocurrencies while continuing to develop a CBDC is that the country in question may favor the ability to closely monitor and control CBDCs while still benefiting from the efficiency that blockchain technology can provide to their respective financial sector.
The list of countries with no CBDC development and no crypto ban, such as Ethiopia, South Sudan, or the Gambia, includes states with relatively lower levels of development, a lack of institutional capacity, and in some cases, civil conflict. Perhaps this suggests that consideration of either of these blockchain-related initiatives is lagging relative to other more pressing priorities.
Countries with bans on crypto and no CBDC development in sight, such as Algeria and Mali, may be especially wary toward any type of digital currency based on blockchain technology or simply resistant to technological change. In Algeria, for example, President Tebboune recently fired the Central Bank governor amidst various national fiscal problems including high inflation; perhaps in this case the government does not trust the Central Bank to properly develop a CBDC. President Tebboune has also been a vocal critic of the potential dangers of cryptocurrencies in justifying Algeria’s ban on Bitcoin and other digital currencies, and a 2018 Algerian finance bill cites that digital currencies “may be used in illegal activities such as drug trafficking, money laundering and tax evasion.”
On the other hand, countries with no bans on crypto and which are actively developing a CBDC, such as Kenya, Mauritius, or Zambia, might be characterized as being more open to both the economic growth benefits associated with cryptocurrency adoption as well as the potential gains that could come from the central tracking capabilities offered by a CBDC. Regulators at Kenya’s Capital Markets Authority (CMA), for example, have noted the inevitable rise of crypto assets and issued a report emphasizing their encompassing approach to play within the trade rather than control it. Kenyan Capital Markets Authorities also noted how CBDC adoption will better equip government regulators to “combat money laundering and the financing of terrorism,” also noting how a national CBDC could “inspire innovative business solutions” associated with cryptocurrencies.
Fertile Ground for Further Exploration
Of course, these speculations about why some African countries choose a particular combination of CBDC development and crypto regulation merit closer examinations on a case-by-case basis, and by systematically controlling for other alternative explanations. In general, it will be interesting to follow the evolution of these trajectories over time and continue to trace the apparent trend lines.
In the meantime, we would love to hear perspectives from our readers — why do you think certain countries may choose a particular path of crypto regulation and CBCD adoption?
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📰 News & Opinion In and Around Africa
Author: Adegboyega Olowoporuko
The level of cryptocurrency adoption in Africa is increasing significantly as Highlighted by the Lbank CEO, Allen Wei. As one of the most populated continents, this high adoption rate has a lot of impact in the overall crypto economy.
The high level of blockchain adoption could make it that much easier to solve Africa’s economic problems in all their different forms.
As Allen Wei goes on to say, ‘Africa will now be able to provide an inclusive society with a robust economy and a very high standard of living’, he implies that the wealth that could be generated for Africans through this adoption could be unprecedented in it’s magnitude.
An opinion piece by Kudzai Kutukwa states the value of decentralisation, after all, without the self-custody elements, Bitcoin could be said to be nothing more than centralised exchange IOUs. The expression "not your keys, not your coins" serves as a reminder to maintain financial independence rather than just being a catchphrase.
He goes on to remind the reader that whoever manages your finances manages your spending, they are in essence managing you. Centralised financial systems—of which non-self custody/hosted wallets are a component—are created to give the state control over all aspects of the flow of funds. By separating one’s money from the government, Bitcoin was created with the goal of empowering individuals; self-custody wallets play a crucial role in maintaining that.
It is crucial to have payment systems and tools that are sufficiently decentralised and effective in guaranteeing the preservation of one’s privacy, in a world where digital payments have become the norm rather than the exception.
The African continent, although not entirely leading the list of the world's highest crypto adopting continents, has emerged as one of the safer, more welcoming places for crypto activities.
Despite the continuously tremendous falls in crypto prices and value, Bitcoin continues to be held high in sentiment & valuation as one of the world’s leading crypto coins.
While Nigeria remains without question the leader of cryptocurrency adoption in Africa, other emerging power house countries like South African, Kenya and Egypt are catching up; Ghana is now considered to be one of the African countries with a highest number of crypto users.
The Nigerian Central Bank governor, Godwin Emefiele, called for the Central Bank's Monetary Policy Committee (MPC) retreat. He believes the rise of fintechs and cryptocurrencies has changed how the financial system works and there should be some changes that reflect this.
Godwin proposes that the financial system regulations, supervision and monetary policy implementations should be rethought to apply to the times.
The meeting was said to have been held on July 18th - 19th, in a bid to decide on things the Central Bank MPC deemed important to improve Nigeria’s monetary policy. The governor also stated that the MPC policies will contribute to capacitating technologies and innovations that lead to the continued development of Nigeria.
There will be several benefits like access to financial services, poverty reduction, and employment creation.
He advised the members of the MPC to study and understand monetary policy tools and objectives that are relevant in our digitalised world. The retreat was also used to track the MPC’d performance of the past 3-4 years.
Author: Terence Zimwara
As seen on the Sango coin website, a total of 210,000,000 sango tokens will be made available to users who are interested in participating in the project.
Investors who take part in what the country calls the first digital monetary system to be “powered by the bitcoin blockchain,” have an opportunity to receive e-residency status if they choose to ‘lock-in’ their tokens.
Starting towards the end of July, each coin will go for $0.10 for this first round, with a required minimum buy of $500 per transaction (~ 5000 coins). These purchases can be made using cryptocurrencies such as Ethereum and Bitcoin.
If you have been trading on FTX in Ghana, guess what ? you can now deposit Ghana cedi in FTX through the website or the app. FTX continues to roll out products and packages across Africa.
🥷🏾 Airdrops Hunter
📚 Learning Centre
Credit: Defi Download Newsletter
Liquidity pools are an integral part of decentralized finance, as they allow the trading of assets on decentralized exchanges. Liquidity pools are a collection of token pairs or groups locked into smart contracts. Think USDC/ETH or DAI/USDC/USDT/FEI. These pools provide liquidity for trades that happen on the protocol and enable users to swap in and out of specific tokens that are within the pool.
The deeper the pool liquidity, that is, the more of each token in the pool, the less a trade will affect the relative number of tokens in the pool and the price movement of the token when traded. In other words, more tokens in a pool means less slippage with each trade. Slippage is the amount of value lost in the trade from one token to another.
😂 Meme Humour
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