The use of cryptocurrency is on the rise in Africa. This is due to the financial and political instability on that continent. But with the continuation of the COVID-19 pandemic and the world’s central banks’ response to it, many of the issues that make cryptocurrency useful in Africa are beginning to appear in the rest of the world.
Most nations in Africa suffer from high inflation. As the COVID-19 pandemic has raged throughout the world, the governments of the world began approving huge stimulus packages. In addition to this massive increase in the money supply, they also lowered the interest rates to near zero.
Inflation is a robber of wealth. If you have large amounts of fiat currency, inflation can cause it to lose value very quickly. When the money supply is increased by the central banks and the economy doesn’t grow to the corresponding size to absorb that liquidity, inflation is the result. Cryptocurrencies like Bitcoin with its strict supply schedule protect its holders against arbitrary increases in Bitcoin supply.
While this dilution of the money supply is intended to keep the economy flowing, the increased restrictions being enforced due to COVID-19 make it harder and harder to carry out economic activities. Furthermore, many people are panicked about the future and have chosen to save what little money they can for when things get really bad. This defeats the purpose of the stimulus. Increased money supply plus a lowering of economic activity can lead to deflation.
This deflation will likely be met by central banks with another increase in the money supply. This will dilute the value of the currency, making anyone who holds it sitting ducks while the value of their money shoots downward. This is especially brutal after a round of deflation, which increases the value of the currency. This increases the volatility of prices and confuses consumers about whether they should buy goods before the price goes up or wait for the price to go down. Bitcoin’s stable supply would make it a very welcome commodity in such an environment for both buyers and sellers.
Much of the world is becoming increasingly polarized politically. In the United States, the President is despised by almost half the country. His presumptive challenger, if elected, will take office at a more advanced age than Ronald Reagan was when he left office. This is a fact that makes his largely inexperienced shortlist of running mates—who would succeed him if he dies or becomes incapacitated—seem to carry a significant risk.
It is not just the United States that is experiencing such political instability. Who could have imagined only a few years ago that the United Kingdom would leave the European Union? The COVID-19 pandemic is not only creating new problems but exacerbating old ones. Such instability in the governments of the world can lead to instability in the central banks that govern the world’s fiat currency. When these currencies become unstable, entire economies become unstable. Cryptocurrency can provide an anchor to those who wish to preserve the value of their assets.
Lack of Demand for Traditional Finance
Financial and political instability could lead to a lack of demand for traditional finance. If economic woes persist and poverty increases, it is likely the number of people underserved by the traditional financial system will increase. The legacy financial system’s lack of trust of these consumers will lead them to use trustless, permissionless cryptocurrency for their financial needs.
If you like this article, check out one of our previous in-house articles, “Is Bitcoin Really Fiat?” by Census Open Finance.
In areas where multiple currencies are used, the fees for converting or transacting in cryptocurrency are much cheaper than converting fiat currencies back and forth. International financial systems like SWIFT are often slow and expensive for the moving of funds. Cryptocurrency has shined in this area for many years and will continue to do so for many to come.
Digital and Mobile Saturation
Many of the developed countries have widespread access to mobile phones and digital technology. This is a fact that makes using cryptocurrency easy. Even many emerging countries also have high smartphone adoption rates. As this number grows, especially in areas where financial and political turmoil abound, the use of Bitcoin for reliable financial services and everyday transactions will increase.
Ironically, one of the strongest catalysts for adoption could be the digitization of fiat currency. With the COVID-19 pandemic shutting down the operations of many parts of government, the U.S. experienced a shortage of coins and even paper bills. This has added fuel to the already substantial deliberation about digitizing the dollar. Doing so would eliminate the need to print so much paper currency and bills, but it would also digitize the way people think about currency.
With millions of consumers all needing to be literate in interacting with a digital currency, would you choose fiat currency that can be manipulated by central banks or a cryptocurrency whose supply is strictly limited to ensure that it retains more of its value?
When the time comes for your or someone you know to begin their journey with cryptocurrency, the Census Note makes a great way to transition from cash to cryptocurrency. It is a cold hardware wallet the size of a payment card. It fits right in your wallet next to all your other payment cards. It can be easily accessed with any smartphone using NFC to check your balance, send funds or receive funds. Financial services like borrowing, lending and earning interest are coming soon.
Digital and mobile saturation and digital fiat are the more positive catalysts in this list. These are fundamental factors that set the stage for cryptocurrency to become widely adopted. Many of these catalysts are kind of unsettling, but radical change does not typically occur when things are easy. Difficult circumstances have a way of washing old-fashioned ideas away with great speed, replacing them with ideas that we look to and wonder how we ever lived without them.