How cryptocurrency can promote financial services

Thursday June 24 2021
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After President Samia Suluhu Hassan recent pragmatic directive on cryptocurrencies, crypto economy experts have spelt out several reasons why she might be pushing for official bitcoin mining and formal adoption of other digital assets.
To them, the motivation for the sixth phase government to start planning for embracement of digital money has much to do with remittances and taming unemployment.
Bitcoin enthusiasts also say that since cryptos involve US dollar-denominated investments formalisation of digital currencies in the country may help to generate and increase foreign exchange circulation in the economy.


Financial Inclusion
However, a key aspect the proponents of decentralised banking systems have not pointed out on the merits of Tanzania officially going crypto is the ability of
Vocal advocates of using digital assets to promote financial inclusion include the World Economic Forum (WEF), which says that blockchain technology and the cryptocurrencies that use it are helping to create open and democratic financial systems.
“Unfortunately,” it explains in a write-up titled: Cryptocurrencies Can Enable Financial Inclusion, “many people remain sceptical due to widely circulated myths and misconceptions.”


Crypto Economy
WEF has it that the crypto economy is leading to the development of an alternative financial and technological infrastructure that is global, open source, and accessible to all who have access to the internet, regardless of nationality, ethnicity, race, gender, and socio-economic class.
“The mainstream narrative on cryptocurrencies has typically addressed the speculative and risky nature of this new investable asset class, its uses in cybercrime and the dark web, the negative ESG (environmental, social, and governance) impacts of mining, and in some cases the victimization of uninformed consumers,” the international NGO points out.
“However, perhaps not enough is said or written about how this new hotbed of global and open financial experimentation in the crypto economy is resulting in tangible, programmable, and modular technologies focused on value store, peer-to-peer micropayments, lending, margin/collateralization, market making, and price discovery,” it explains.
“Today, these automated technologies are being tested in real life by millions of people with billions of dollars that could potentially evolve and lead to the broader global financial inclusiveness of billions of under- and unbanked people tomorrow through simple to set-up and low cost automated financial services at scale,” WEF further argues.


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President Samia Suluhu Hassan
On June 13, President Samia became the first African head of state to acknowledge openly the acceptance of cryptocurrency. Speaking in Mwanza, she directed the Bank of Tanzania (BoT) to prepare for cryptocurrency, saying the age of crypto and blockchain was dawning as she urged the country to pave the way for change.
The central bank was told to start making the necessary preparations so as not to be caught off guard as global attitudes towards banking take a new direction with cryptocurrencies showing all signs of becoming the future of finance.
Highlighting the lack of crypto adoption and development in the East African region, President Samia stated: “We have witnessed the emergence of a new journey through the internet.
“Throughout the region, including Tanzania, they have not accepted or started using these routes. My call to the central bank is that you should start working on that development. BoT should be ready for the changes and not be caught unprepared.”
Coming a few days after El Salvador became the first country to adopt bitcoin as legal tender, her pragmatic crypto stance and directive to the central bank is said to have been prompted by the following reasons.


Diaspora Remittances
Firstly is the fact that the world continues to evolve with innovation around payments and financial transactions. Then there is the issue of bolstering diaspora remittances into the country through cryptocurrency.
According to the World Bank findings, Tanzania’s remittances stood at $430 million in quarter one of 2020, representing only 0.8 per cent of its GDP ($53.75 billion). The country is currently one of the least remitted economies in Africa.
“The cost of diaspora remittances into the country is also among the highest in Africa, according to World Bank figures. The average transaction cost of sending remittances to Tanzania was put at 19.73 per cent in 2020, way higher than Kenya’s 9.54 per cent and Ghana’s 8.16 per cent,” Gbemileke Babatunde wrote on the technext.ng website.
“Hence, it shows that nationals have to pay exorbitant charges to send money back home. However, cryptos could help cut down costs due to much lower commissions and help incentivise greater remittance inflows,” he explained in the article titled: Possible Reasons Why Tanzania Is Pushing for the Adoption of Bitcoin and Other Cryptos.


Job Creation
The mechanical engineer, who writes on Africa-focused tech stories on startups, policy and governance, said perhaps the government could also be trying to create more jobs and alleviate poverty by mulling the official adoption of cryptos.
Crypto trading is not banned or illegal in Tanzania but the central bank had declared in 2019 that cryptos were not authorised as legal tender in the country.
Data from the World Bank and International Labour Organization show that Tanzania’s unemployment rate reached 2.16 per cent in 2020, increasing for the first time in eight years.
As a result, the Nigerian explained, several people in the country could be leveraging cryptos to earn a living by trading part-time or as a full-time job. Tanzania’s peer-to-peer (P2P) bitcoin trading value has grown by about 42 per cent from $2.9 million to $5.08 million in the past year, he added.
“While many in Tanzania have not yet embraced decentralised finance, crypto activity has steadily grown in the past few years. The country has traded over $2.5 million worth of bitcoin P2P in 2021 so far,” reads the article.
“Although Tanzania may not go the El Salvador route by accepting bitcoin as legal tender, the country’s central bank might be contemplating the adoption of bitcoin as a reserve currency,” it adds.


Education is the Key
While Tanzania has become the latest country to signal its support for digital assets, which boosted bitcoin mining significantly in mid this month, actual cryptocurrency traders in the country remain bearish on the president’s desire to go crypto.
According to cryptocurrencynews.com, their experience has taught them that there is nothing like experience. They’re right, one of its experts observed. Cryptocurrency education should be the prime focus, and many believe that it should come from the country’s central economic authority.
In the article titled: Tanzania’s First Female President Wants the Country to Go Crypto, cryptocurrencynews.com says the plan to adopt crypto en masse in Tanzania would have profound repercussions, and many people would be left out of the loop while a select few see the most gains.
Readiness for Cryptocurrencies
On June 15, The Citizen reported that many observers have expressed concerns on Tanzania’s competency in the hard-to-trace crypto transactions.
“We still have a long way to go - and for the central bank to go recklessly into the business would be suicidal. Apart from very limited knowledge on cryptocurrencies, the biggest issue is that we do not as a country have a broker or even investment and trade advisers to facilitate going into blockchain or cryptocurrency as a nation,” commented Mr Ismail Sabuni, a cryptocurrency trader.
Mr Sabuni added that, on top of not having competent brokers, cryptocurrency is volatile and expensive - which could adversely affect the inflation rate. Crypto markets are volatile because there is no central authority to stop them from being so.