There are several ways to think about Cross border payments in context of Africa 🌍
1) Between African countries 2) Between Africa and off shore countries 3) Between Africa and the virtual world
It is my opinion that 3) cannot be addressed by African local currencies. Only foreign currencies like USD stablecoins or cryptocurrencies
It is my opinion that 2) cannot be addressed by African local currencies. Only foreign currencies like USD EUR or RMB or GBP can work here.
Cryptocurrencies can also play a role here
It is my opinion that 1) can be addressed by African local countries issued by countries with strong economic and political influence across the continent SA, Kenya, Nigeria*
1) can also be addressed by foreign currencies USD, EUR, RMB
1) can also be addressed by crypto
I'm trying to understand the potential role of a Kenya Shillings backed CBDC for cross border payments.
My opinions, a Kenyan based CBDC only works for East African regional settlement of trade
Beyond East Africa, it becomes difficult to make a case for the KES
"Kenya dominates transactions in the East African Payment System, which allows citizens of the region to make and receive payments in regional currencies." theeastafrican.co.ke/tea/business/e…
"The present East African Community payments system has been dogged by difficulties in funding arrangements of the regional currencies from regional commercial banks."
Hence why in June 2021
"The East Africa Community member states will explore the potential of a central bank digital currency (CBDC) for their shared payment system to end reluctance by member countries to trade in each other’s currency."
So if the 6 East African Community states including Kenya can align on interoperable CBDCS across the region, there's a case to offer wholesale CBDCs /stablecoins via commercial banks for settlement of FORMAL trade.
Formal b/c informal trade is different.
Still, this will only address 1). And it could turn murky if other member states choose to explore alternative paths to CBDCs or digital currency such as El Savadors Bitcoin adoption or dollar backed digital currency.
The politics remain
But another issue remains unresolved. How to coordinate cross border trade between trading blocs, which are all dependent on foreign currencies like USD and EUR.
This is another political coordination headache for country specific CBDCs
We shld consider that CBDCs across Africa coalesce around Centres/concentrations of power or influence versus pure central banks. For example EAC, & West Africa Monetary unions (both are not central banks) call them “governance board digital currencies”
There is no need to be fixated on a "Central Bank" digital currency
B/c maybe what's really needed is a digital currency is backed by a governance board structure with political influence such as EAC or WAEMU or a hypothetical AFCTA consortium
IMO
Its not realistic to have 20+ central bank digital currencies across Africa, when already trade and commerce centers around a few (including foreign currencies).
Eventually the most liquid preferred currencies will float to the top, whether they are digital or not
3) will be addressed by tokens on Blockchain such as Bitcoin or other crypto.
Local currencies will only serve as a bridge from your locale.
Once you are in the Metaverse, there is no need for your KES. Only internet private currencies or foreign currency backed stablecoins
In this regard, a Central Bank digital currency issued by Kenya is useless in the Metaverse /web3 / digital non sovereign virtual space.
Here the KES is useless.
So a Kenyan issued CBDC serves no purpose in this type of cross border commerce.
Finally 2) trade between Africa and other offshore nations such as China , US, Russia, India etc
This type of trade should be classified into 2
a) formal trade that requires using banks for assurances
b) informal trade that can bypass banks ie work on trust and relationships
Here I think there is room for a local currency backed CBDC (wholesale) as a bridge from local to offshore say
Convert your local funds into Kenya's CBDC, then your bank converts your Kenyan CBDC into China's CBDC to complete trade of physical goods btwn Kenya and China
This works b/c both countries have bilateral trade agreements (political consensus) and there is alignment on tracking money flows as a necessity for control.
But, it only works where locally, all traders using banks for China trade flows are forced to route through CBDCs
If you know anything about Africa 🌍, informal trade is huge!
Case studies in from Nigeria show us that when Central Bank impose rules that don't align with traders, they opt for alternatives that bypass Central Bank rules as long as their counterparts accept alternatives
For example, the emergence of parallel currency markets in Northern Nigeria in the 1970s in response to Central Bank imposed currency controls and IMFs SAPs
“Parallel currency markets are still seen as the product of excessive currency controls”
Source of this gem 💎 from history is this paper by
Yahaya Hashim and Kate Meagher
I highly recommend this paper to grasp the possibilities of a multi digital currency Africa 🌍
In 2022, crypto peer to peer markets ARE the equivalent of parallel currency markets with the added bonus of cross border interoperability within Africa 🌍 and beyond.
For example, in 2020/2021 it was reported that Nigerian traders, in response to Central Bank imposed capital countries, switched to using Bitcoin to settle trade with Chinese counterparts (who were happy to accept BTC Bitcoin / crypto as an alternative )
"Abolaji Odunjo made a fundamental change to his business selling mobile phones in a bustling street market in Lagos: He started paying his suppliers in Bitcoin.
His Chinese suppliers asked to be paid in the cryptocurrency, he said, for speed and convenience"
I am privy to similar examples from Kenya where traders sourcing vehicles from Japan opted for Bitcoin and routed through crypto p2p parallel currency vendors.
Traders are rational and will act in a manner consistent with business interests ie profit maximization
While Central Bankers in Africa 🌍 may force traders to route ALL settlement of trade through wholesale CBDCs, traders will ALWAYs seek better alternatives.
This is a headache for African Central Bankers. How do they shut down crypto parallel currency markets?!
In addition, global superpowers such as China US EUR Russia are moving to issue free to use stablecoins as in, it is in their interest to flood the market with their national currencies as a matter of national interests. Meaning they want more people to use their currencies lol!
This means, traders in Africa will have a wide array of options to settle trade with
- USD stablecoins
- Crypto like Bitcoin
- other super power issued stablecoins.
3 better alternatives versus African local currency backed CBDCs.
This is the worst time to be an African Central banker of a country with a useless national currency. The odds are stacked against them.
I expect their only option to protect their currencies is to go full on authoritarian, like the Central Bank of Nigeria.
If I was in a position to advise African Central Bankers, I would implore them to consider a multi digital currency framework that supports ALL options. Else, they will further grow parallel currency markets.
Worse now b/c national currencies are declining versus crypto and USD
I think we ought to get rid of Central Bankers like @njorogep who are IMF/WB puppets and serve the interest of their slave masters.
These are my thoughts after quickly perusing this paper by the Central Bank of Kenya
To me it read like a research paper by an intern/associate produced quickly (no more than 4 - 6 weeks of DESK research)
Today I purchased a newspaper for the first time in 5 years to read about the @CBKKenya plans to issue Kenya shillings backed Central Bank digital currency
ICYMI ⬇️
Call me a cynic, but, I don't see the point of a CBDC for a country with real time payments (mobile money and bank payments)
Also I'm wondering how an account with the Central Bank versus an account with a commercial bank makes a difference when both are plagued with inflation risks (of the KES) and even worse, heightened surveillance risk.
A quick test on hiring for early stage start-ups is to ask potential hires to put together a half-page work plan to manage a defined project.
Work plan has
- Date
- Task/actionable
- Status (complete, ongoing)
- Outcome
If you cannot communicate a projects, (any project for that matter) in this fashion you are too much work to manage / you require handholding / not cut out for startups
😐
If you cannot communicate (anything) in
- 1 page
- double spaced
- Arial 12
- 275 words or less.
⚡️Crypto regulations are coming to key African markets THREAD
⬇️ What follows explains why I expect a shift in balance in crypto transactions - from decentralized 🔜 centralized - backed by findings
❌ In the past 5 - 7 years, banking and mobile money gateway restrictions stifled certain crypto business models at the benefit of others
🚀 P2p emerged the winner, reaping all the benefits of Central Bank sanctions. Volumes for Africa moved to Paxful, localbitcoins, binance p2p and others as a gateway into bitcoin and stablecoins.
✅ Bonafide a wallet that lets you save and win prizes weekly in dollars
Great spin on fintech savings/investments/yield products. weaving games and fun/ social with financial instruments. Crypto natively enables fun programming
How much funding is going into African Crypto & Blockchain startups?
Looks like crazy volumes of VC capital is flowing into Crypto blockchain startups in the rest of the world apart from Africa...
My guess is financial services related use cases rank high on the list: payments, cross border, trading & speculation etc
Central Banking regulations is still the bottleneck b/c of formal fiat rails which caps possible products and impedes onboarding
Some options
1) old fintechs pivot into crypto products eg Chipper Cash, Stax, Eversend 2) new crypto/blockchain startups emerge w/ fresh rounds of funding 3) old African crypto startups raise more money for new products/expansion/scaling 4) African banks join crypto hype train