Cryptocurrency is equitable, and must come in good faith. – Bright Enabulele
Sovereign Debt
Economic activities are becoming more and more debt-based, resulting in an emboldened sovereign debt crisis worldwide. By the end of this year, over 100 countries will be expected to pay USD 130 billion in debt interest. All this is because of the economic slowdown in the aftermath of the Covid-19 crisis that could also prompt more sovereign bankruptcies, with countries overburdened by their debt obligations while investors seek higher returns to hold sovereign debt. Currently, servicing debts and negotiating deals with investors is more difficult and, at an extreme, making the country seem like it is in bankruptcy.
Amid such a gruesome situation, countries can opt for cryptocurrency even knowing that they are unstable. However, faced with the prospect of many states declaring default, cryptocurrency adoption could create a relatively safer relief than the turbulent national currencies of the states.
Besides, cryptocurrencies act as a viable medium of exchange that does not devalue or affect inflation when the coin economics are well-positioned. Due to the decentralized nature of blockchain, it is possible to create immutable, autonomous, and self-executing software that no one can control, not even the creator(s) themselves.
African Dynamics and Cryptocurrency
Let us take Africa, the second-largest continent globally with diverse economic systems regulated by their governments through centralized fiscal planning. With limited private freedom, inflation, poverty, weak financial systems, and fragmented banking, the continent is leading the globe in electronic money adaptation. Globally, it accounts for more than 45 percent of mobile money transactions.
Other than a youthful population, multiple factors make Africa one of the most active regional cryptocurrency markets, including hyperinflation, debt crisis, a price hike that has made everyday goods and services out of the reach of common people, notwithstanding a huge number of unbanked or underbanked people and communities.
A more specific approach for understanding a country’s debt crisis and leaning towards cryptocurrency would be examining the case of Nigeria. This African country, the largest economy on the continent, faces a sovereign debt of around 100 billion US dollars. In 2020, its government debt to GDP increased to 34.98% from 29.10% in 2019. According to its Debt Management Office, the total public debt stock, including the debt stock of the Federal Government of Nigeria, Federal Capital Territory, and 36 State Governments, amounts to USD87 billion. Other debts the country owes to local contractors, oil marketing companies, and exporters are also included in the debt stock.
Such a huge debt pile and the economic uncertainty caused by the Covid-19 pandemic forced Nigerians to seek relief in the crypto market. Since Nigeria is Africa’s largest oil-producing and exporting country. After a crash in oil prices, it suffered as the oil demand was slashed globally due to the pandemic when oil prices hit historic lows.
The Case of Nigeria
Such an economic crunch and some other socio-economic challenges severely affected the Nigerian economy. By January 2021, its unemployment rate and inflation rose to 34% and 18%, respectively.
These facts explain Nigeria’s quest for alternative financial systems. They instantly opted for cryptocurrency as many cryptos such as Bitcoin, Bitcoin Cash, and other fungible blockchain currencies like Oduwacoin, designed especially as alternatives for the continent, offer viable investment and remittance plans that could drag them out of economic instability and hyperinflation when properly adopted.
Nigeria’s central bank further worsened the situation by devaluing the Nigerian national currency by 24% in 2020. The Naira was expected to lessen further by 10% in 2021. Such insights provided enough reason for Nigerians to quest for cryptocurrency as a store of value for their remaining savings.
Fear
Resultantly, Nigeria started to lead Africa in terms of crypto P2P trading volumes. Over $8 million worth of Bitcoin trade every week in the country, accounting for almost half of the continent’s trading activity. This volume cleared the Naira to be launched on Binance P2P as the first African currency.
However, the Nigerian government banned cryptocurrency trading in the country, citing the lack of proper regulation and financial crimes as the prime reasons for Nigeria’s central bank’s decision in February 2021.
The government was afraid that if the foreign owners of assets embedded in cryptocurrency amounting to more than $4 billion came and took this money, the Nigerian economy would collapse. Meanwhile, the Nigerian government wanted to “get remittance dollars to flow back into the official channels to support the exchange rate.” one economist who requested anonymity told Quartz.
Nonetheless, the crypto market will continue its upward trajectory not only in Nigeria but in entire Africa. Crypto adoption in the continent will keep soaring due to the dire need for an alternative financial regime to protect Africans from the worst effects of fluctuating fiat currencies, costly remittance infrastructure, and hyperinflation.
Conclusion
Cryptocurrency has lately been a hot topic that is dominating the headlines. One of the trending reasons is that it could help solve some of the world’s persistent financial issues. However, it will not happen overnight. Good things take time.
