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Image of Cryptocurrencies as a buffer against financial bottlenecks in Africa.

Cryptocurrencies as a buffer against financial bottlenecks in Africa.

Cryptocurrencies such as Bitcoin, Ethereum, and Litecoin among others have gotten traction in the past 12 years. For those still in the dark about Crypto, it is simply a digital currency not under the administration of any government. In recent years, it has been steady facilitating participation in financial transactions of millions of people across the world without the constraints and government interference that come with fiat currencies – money issued by a country’s central bank whose value is not based on gold or silver.

In Africa, its nascent rise is propelled by bureaucratic financial regimes in most of the continent. Many prefer cryptocurrencies such as Bitcoin because it hedges against the daily volatile fluctuations of the countries’ exchange rate to the dollar, and safeguard from high transaction costs that come through banking institutions and money transfer agencies, including mobile money transactions. Bitcoin cuts through all the noise and thought it might see more activity in Asia, the Americas and Europe; the African market has good reason to use Bitcoin.

Nigeria for example is the second biggest market for Bitcoin trading. According to this Quartz Africa article, over the past five years, Nigeria has traded Bitcoin valued at over 566 million US dollars. This became obvious during the police brutality protests #EndSARS in October 2020. Protesters used Bitcoin for fundraising purposes to sideline government oversight of their activities. In March 2021, the Nigerian Central Bank sent out a controversial communique which was interpreted as an outright ban on the use of cryptocurrency accounts in Nigeria. However, according to this report by CoinDesk, bank officials explained that they had not ordered financial institutions to shut down all accounts associated with cryptocurrency trading.  The Bank maintains that it is simply reinforcing an imposed ban from 2017 which prohibits cryptocurrency transactions or facilitating cryptocurrency exchanges in the banking sector.

Many Nigerians came out on social media in outrage, and many claimed to have received messages from their banks, informing them that their cryptocurrency accounts were soon to be closed following the Central Bank of Nigeria directive.

Photo: Courtesy of BBC Pidgin

But why are Some Countries Against the Use of Cryptocurrencies?

As with the Nigeria situation, the country’s Central Bank said it took this measure to ‘protect the financial system and the generality of Nigerians (including the youth population) from the risks inherent in Crypto assets transactions, which have escalated in recent times, with dire consequences for the integrity of the financial system and financial stability.’ In addition, the government argued that the anonymous, unaccountable, unregulated, and volatile nature of cryptocurrencies exposes investors, traders, and associated financial institutions that interact with such currencies to significant financial and cyber risks.

Many do not believe this and think it is a move by the government to protect the financial institutions for the government. This is because digital currencies are perceived as a usurper in a context where the government as the central authority deploys monetary and fiscal policies and tools, to regulate the financial market and the value of the country’s currency. The idea that there exists a currency that cannot be controlled by the authorities and is gaining mass adoption represents a key risk for their stability. Governments would want to remain the sovereign authorities over the issuance of legal tender.

What is the Cryptocurrency situation in Cameroon?

As shown on the map above, there is no official stance on this by the Cameroon government. The fact that the two mobile money operators – Orange and MTN can facilitate Bitcoin transactions speaks to the government’s acquiescence of sorts.

According to this 2017 article by Bitcoin Africa, Bitcoin and other digital currencies have no legal status in Cameroon. This is because BEAC (Banques des Etats de L’Afrique Centrale), the central bank of the six-nation monetary union, CEMAC, has not yet issued any specific guidance on the use of Bitcoin within its borders.

In 2001, BEAC created a legal framework for electronic money titled ‘Regulation No. 01/11-CEMAC/UMAC/CM – On the Use of Electronic Money. The framework outlines how electronic money can be used to bank the unbanked populations in the region but makes no mention of Bitcoin or other digital cryptocurrencies.

For now, there are independent Bitcoin operators across major cities in the country. Many people use them compared to using bank transfers as those incur a lot of transactional fees, particularly for cross-border transfers.

Bitcoin is gradually but certainly taking root in Cameroon and so long as transfer fees remain high and banking bottlenecks are prohibitive, digital currencies will remain the recourse.

By Pamela Bongkiyung

Communications & Corporate Strategy