Africa rehearses the digital currency revolution


Nigeria launched the eNaira, the world’s first nationwide digital currency. More than any other region of the globe, Africa promises progress through cryptocurrencies.

With the appearance of the mysterious Satoshi Nakamoto and his invention Bitcoin, cryptocurrencies are on everyone’s lips. These digital currencies allow money to be transferred from one digital device to another, with no time delay – worldwide, without a bank or other middleman and therefore low transaction costs. Many rumours and legends surround this new technology and during the COVID-19 pandemic, a real gold rush developed around the development of new cryptocurrencies and tokens.

Central banks around the world are now also getting involved in this currency race. According to a survey by the Bank for International Settlements (BIS), 90 percent of central banks worldwide are now involved with cryptocurrencies. Without exception, every African central bank surveyed was working on projects related to digital currencies. This is no coincidence, as African countries can benefit from these technologies in particular.

Digital currencies conquer the less-developed world

Digital currencies can fill gaps in services that citizens in industrialized countries have long taken for granted, especially for a poorer part of the world’s population. Together with the ever-increasing proliferation of digital devices such as cell phones and tablets, a widespread mobile network, and seemingly simple things such as bank accounts, money transfers or savings accounts are becoming accessible to billions of people.

Unsurprisingly, the most enthusiastic users are already people in developing and emerging countries, where hundreds of millions of people still live on the lower income line or in poverty. In 2019, when many in Western countries such as Switzerland, the U.S. and Australia still viewed cryptocurrencies sceptically as a lubricant for black markets and criminal activity, close to a third of Nigerians and a fifth of Turks were already using cryptocurrencies. In the years that followed, their user numbers already exploded to almost half the population.

international adoption of digital currencies, share of population. Number of people, who either owned or used cryptocurrencies over the course of the year. Source: (statista, 2023)

international adoption of digital currencies, share of population. Number of people, who either owned or used cryptocurrencies over the course of the year. Source: (statista, 2023)

The eNaira was also the first digital currency to see the light of day in Nigeria, a populous nation whose economy is not dominated by international financial services. The eNaira allows Nigerian citizens to access digital currencies at different levels and in certain quantities at their disposal. This massively expands the potential for people with access to banking services. The country additionally benefits from the fact that soon remittances from the many Nigerians abroad can now be sent home more cheaply across the globe. After all, these account for 5.3 percent of gross domestic product.

African countries have a special added value of digital currencies

In Africa, the proportion of the population without access to traditional financial services is disproportionately high. More than twenty percent of the population is denied access due to high fees and minimum bank deposits. Lack of identification documents is another hurdle to having a bank account, especially for poorer people. In addition, informal, non-contractual business and employment relationships are widespread and are traditionally conducted in cash, as bank transfers are often not worthwhile. Most African central banks, therefore, cite greater financial inclusion as a motivation for developing their digital currencies.

In addition, many African countries have a very low population density. Villages with little financial strength are often many kilometres apart, and roads and transportation between them are so poor that a trip to even the nearest major city is like travelling around the world. It is hardly worthwhile for banks to build up a close-meshed branch network here that includes as many people as possible. Thus, Africans are more cut off from physical interfaces into the global financial world than residents of any other region of the world. Again, cryptocurrencies solve some problems: first and foremost, cash no longer needs to be physically transported over long distances – often through dangerous, desolate areas dominated by bandits. Reports of bank robberies are common headlines in some countries. To this end, African governments as well as numerous aid organizations use cash transfer programs, in which the elderly or socially vulnerable are regularly supported with very small amounts. Again, cryptocurrencies help to reduce the administrative costs of distributing a few dollars to numerous scattered recipients each month.

No other region in the world is as riddled with ethnicities torn across national borders as Africa. African central banks, therefore, place particular emphasis on the interoperability of their currencies across these national borders. Indeed, until now, trade across African state borders has been massively underestimated. This takes place primarily within those divided ethnic groups that trade mainly informally and are therefore not reflected in any statistics. In the same way, the elimination of direct intermediaries such as banks and informal money lenders, as well as lower transaction costs, could reduce bureaucracy and increase the number of private individuals and businesses who receive loans.

Centralization replaces private money creation

Mobile money, a system that uses similar principles to digital currencies, has already established itself on the African continent. With the advent of the cell phone at the turn of the millennium, it was possible to send telephone credits via systems such as M-Pesa, which the recipient could then withdraw in cash. It may therefore be no coincidence that the pioneers of digital decentralized payment models are at home in Africa.

The hawala system, especially in the Islamic part of Africa during the Middle Ages, was a system that enabled trade and exchange and protected against robbery. In this system, a person who wanted to transfer money to another person in a distant place handed over the amount to an agent together with a password. The agent sent this password to his partner at the destination. The person receiving the money could now collect the amount from the agent using the password – without the money ever having to physically move from one location to another. Both continental European civil law and Anglo-Saxon common law borrowed from this system. To this day, African migrants use hawala for low-cost remittances to their families back home.

M-Pesa agent in Tanzania. With the establishment of Mobile Money, there is already a broad layer of potential users of Africa's digital currencies. (Source: Sjöblom/wikicommons, 2009)

M-Pesa agent in Tanzania. With the establishment of Mobile Money, there is already a broad layer of potential users of Africa’s digital currencies. (Source: Sjöblom/wikicommons, 2009)


The evolution to digital currencies is thus just another logical step in the technological evolution and would reach a population that is already receptive to cashless payments. By issuing these new digital currencies, central banks also give more security, as current cryptocurrencies, issued by private opaque developers, are associated with great risks and also fraud. As a legal tender, Africans’ options additionally expand.

More than other developing countries, African central banks even promise to stabilize their monetary policies. Digital currencies allow real-time monitoring of money supply and velocity of circulation. Greater financial inclusion also allows monetary policy measures to have an impact, for example, to stabilize inflation rates, as monetary policy tools can have an impact in far-flung regions. Similarly, it is possible to respond with greater flexibility and more quickly to fluctuations and to control the money supply.

Difficulties on the way to the digital nation

The IMF acknowledged Nigeria’s smooth process in launching one of the world’s first digital currencies, as well as its round-the-clock technical availability so far. The international institution derives some lessons and hurdles for the role of digital currencies after one year of eNaira in Africa’s largest economy:

Initially, eNaira issuance was limited to citizens with bank accounts but was gradually expanded to reach those who do not yet have access to formal banking services – as much as 36 percent of Nigeria’s adult population. Cell phone use is widespread in Nigeria, although not yet as widespread as in other emerging African countries.

Mobile subscriptions in sub-Saharan Africa now exceed even those in computer-friendly India. Numerous African tiger economies have long since overtaken the USA. (Source: world bank, 2023)

Mobile subscriptions in sub-Saharan Africa now exceed even those in computer-friendly India. Numerous African tiger economies have long since overtaken the USA. (Source: world bank, 2023)

In addition, mobile money has long been widely used, and the Monetary Fund fears that state-run systems could lead to predatory competition against the private sector. Considering the immense costs of operating such a system, especially to mitigate the widely dispersed risks from cybercrime, a thoughtful competition policy in this area could potentially be more effective than a dedicated currency. On the other hand, a state currency would have the advantage of better integrating the informal sector, which in Nigeria still accounts for 50 percent of GDP and 80 percent of employment, into state structures, since transactions here are not anonymous.

One of the biggest challenges is still to enable international transactions. The current cost of transferring foreign currency to Africa is still exorbitantly high. However, digital currencies could be a game changer for the African diaspora to send money to their home countries and bring foreign exchange into the country.

Overall, the launch of one of the world’s first digital currencies in Africa’s largest economy is seen as a success. In a survey by the Bank for International Settlements (BIS), African central banks cited financial inclusion as the most important motive for developing digital currencies, more than other emerging and developing economies. In addition to the still unresolved cross-border use, the main hurdle seen is the lack of physical infrastructure for mobile Internet before the system is available to all Africans.


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